Macroeconomics and the Stock Market

The stock market is a consumer of economic news, or you could call the stock market a barometer of sentiment, or opinion. I manage my own retirement funds and I have worked as a professional money manager. Monday I was freaked out, because of the trade war news. Not freaked out really, more like attentive and sensitive to the market’s mood.  I have taken excerpts from a couple of stories from today, June 26, 2018. The links are in this post.

Here is the macro perspective.

Some of the leading economic indicators are beginning to deteriorate. The story of synchronized global growth is not as strong now as it was only very recently. Risks from a trade war have also increased. There is more risk in the market today than a couple of weeks ago. More risk does not mean selling good positions. For practical purposes, it means holding enough cash.

And here is the micro perspective.

What’s driving markets?

Investors remain worried that trade tensions between the U.S. and major trading partners such as China and the European Union could develop into a big drag on the global economy.

They’re also tracking some disagreement and uncertainty within the Trump administration over trade-related matters.

Peter Navarro, the president’s trade adviser, said Monday a forthcoming Treasury Department report will focus on China, and with respect to other countries, there is “nothing on the table.” Navarro spoke on CNBC following a tweet by Treasury Secretary Steven Mnuchin, which said investment restrictions will apply to all countries attempting to steal U.S. technology, not just China.

Stock market climbs after trade-driven selloff

U.S. stocks were trading modestly higher Tuesday afternoon, as equity benchmarks attempted to recover some of the sharp losses from the previous session, which were spurred by uncertainty over trade policy—a factor that remains unresolved.

What did the benchmarks do?

The Dow Jones Industrial Average DJIA, +0.39% rose 113 points, or 0.5%, to 24,363. The blue-chip average inched back above its 200-day moving average of 24,292.31. The Dow closed below the average—a closely watched gauge for long-term momentum trends—for the first time since June 2016 on Monday, a technical move that chart watchers tend to view as a break in a longer-term trend.

The S&P 500 index SPX, +0.44% was up 14 points to 2,731, a gain of 0.5%. The Nasdaq Composite Index COMP, +0.62% added 58 points to 7,590, a move of 0.8%.

Eight of the 11 primary S&P 500 sectors were higher on the day, although the moves were mostly muted. Technology stocks, which were among the biggest decliners on Monday following reports of new efforts to block Chinese investment in and sales to U.S. tech firms, rose 1.2%. Energy shares rallied 1.4% thanks to soaring oil prices.

What are strategists saying?

“The market is trading more on sentiment than fundamentals lately, which means moves are likely to be fickle and short lived,” said Liz Young, senior investment strategist at BNY Mellon Investment Management.

“We feel that while momentum around trade is escalating, we’re still in a place where it’s in every nation’s best interest to avoid that outcome, and that things could calm down as negotiations progress,” she said. “In the meantime, the economy is still strong, data is moving in the right direction, and we don’t see this as the issue that will turn things around.”

A stocks in focus?

Harley-Davidson Inc.’s stock HOG, -0.12% fell 0.7%, building on Monday’s 6% drop, which came after the motorcycle maker said it would have to eat the “substantial” short-term costs of recent EU tariffs, but it planned to move some production overseas to ease the burden over the long term. President Donald Trump blasted the company on Twitter for a second day in a row, threatening to tax the company “like never before” if it moves production overseas.

After reading this, can you see how the stock market and economic news are related?


Stacey Knapper