S&P 500; US Indexes Fundamental Daily Forecast – Massive Reversal Led By White House Comments

The volatility that has been driving the price action in the global equities markets since early February reappeared with a vengeance early Wednesday as stocks plunged sharply lower in Europe and shortly after the U.S. opening in reaction to China’s announcement of new tariffs on U.S. goods sparked fears of a trade war.

At their worst, the benchmark S&P 500 Index was down 1.6 percent, the blue chip Dow Jones Industrial Average lost more than 500 points and the tech-driven NASDAQ Composite plunged as much as 1.9 percent.

After hitting their lows for the session, the major indexes came roaring back following upbeat comments from the White House that pushed back on the idea that a trade war was imminent. The intraday stock market rally gained traction after Larry Kudlow, Trump’s chief economic adviser, told reporters:  “He wants to solve this with the least amount of pain….this is a growth action. I can’t emphasize that enough.”

In the cash market, the S&P 500 Index settled at 2644.59, up 30.24 or +1.16%. The Dow Jones Industrial Average finished at 24264.30, up 230.94 or +0.96% and the NASDAQ Composite ended the session at 7050.57, up 109.29 or +1.55%.

Forecast

Since we’re not expecting further tariffs from the United States and China on Thursday or Friday, the markets are likely to be more stable than they were on Wednesday. I think the soothing words from Kudlow led investors to believe that China and the U.S. will negotiate away the current issues. This leaves investors in a position to concentrate on Friday’s U.S. Non-Farm Payrolls report.

The key takeaway from this week should be that the tariffs from the U.S. and China have not taken place, leaving room for negotiation. Kudlow even said that the Trump administration’s proposed tariffs on China may not actually take effect in the end.

“Yes, it’s possible,” National Economic Council Director Larry Kudlow told reporters when asked if there was a chance measures meant to punish alleged Chinese trade abuses would not go into effect. The actions could be a tactic to get China to negotiate on trade practices.

“It’s part of the process. I mean, I would take the president seriously on this tariff issue,” he added. “You know, there are carrots and sticks in life, but he is ultimately a free trader. He’s said that to me, he’s said it publicly. So he wants to solve this with the least amount of pain.”