Trade War or Trade Dispute, Whatever, Strong U.S. Economy Offsetting Concerns Over Trade Policy

Stocks jumped on the opening on Tuesday as investors ignored concerns over a trade war between the United States and its trading partners in China, Mexico, Canada and the European Union. Well, at least that’s what the headlines read.

Any seasoned trader should know that the trading session before the U.S. Fourth of July holiday, or for that matter the last trading session before Christmas and New Year’s Day are notoriously known for well-below average volume. And low volume usually means that like a minefield, the markets are full of danger in the form of bull and bear traps.

Momentum traders should be aware of this phenomenon because they can be unforgiving. So be careful buying strength and selling weakness today. All it takes is a bad day trade to turn into a long-term investment.

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Trade Dispute Score Card

With the U.S. markets within striking distance of their all-time highs and China’s Shanghai Composite touching a two-year low while entering a bear market. I think the “trade dispute” scorecard is showing the U.S. winning so far. But there may be causalities on both sides before it’s all over so why keep score now especially with a looming July 6 deadline for an additional 25 percent tariff from the U.S. on $34 billion worth of Chinese goods from more than 800 product categories.

So far I’ve seen a lot of name calling from analysts with some classifying President Trump as a bully, but so far big money continues to flow into the U.S. Dollar and money speaks louder than words. Always follow the money.

Notice the use of “trade dispute”. We are at risk of a full-blown trade war, but this is not a trade war. And what better time to start a trade dispute when by most measures, the U.S. economy is sailing along and the stock market is holding up remarkably well despite mounting protectionist tensions between the U.S. and its trading partners.

Take for example yesterday’s release of the latest U.S. ISM Manufacturing PMI survey. It showed that the U.S. widened its lead over the rest-of-the-world economy during June. The ISM Manufacturing Index rose to 60.2 for the month of June, up from 58.7 previously. Economists were looking for a lower reading of 58.2.

Compare the U.S. report to the IHS Markit data released on Monday that confirmed the sharp slowdown in Europe’s manufacturing sector during the first six months of the year.

Essentially, the strength in the ISM Manufacturing Index in June clearly showed that at least for now, the strength of the U.S. domestic economy offset any increased concerns over trade policy.

With China’s stock market in bear territory and at a two-year low and signs that the European manufacturing sector is weakening, if Beijing and the European Union want to dig in and fight a prolonged trade war then be my guest.