Stock market shrugs off Mexico and China tariffs

It has become the rigueur de jourof of people who pride themselves on appearing smart to others to proudly proclaim that they don’t follow the news, as if that is a habit that only ‘normies’ indulge in, not high-minded internet philosophers who have more pressing matters to worry about than the latest drama from Trump administration. It’s similar those people who a decade or two ago always found a way to interject into every conversation that they don’t watch or have a TV, until the ubiquity of high-speed internet and ability to stream content meant that not watching TV lost its intellectual cachet, although boasting about not using social media has to extent filled that role.

Joshua Brown of the Reformed Broker blog says he doesn’t doesn’t ‘wake up to the news:’

So at what point to I start paying attention to the news of the day? I might click a few links on Twitter or from The Compound site, which is the aggregator and curator we built for investors (thousands of people follow The Compound on Twitter), but I’m not watching any TV or listening to any business radio until closer to 10am. My philosophy is simple – I’m not going to react to the news of the day, so it can wait.

One other thing – the most crucial thing I want you to heed me on in this discussion – never, ever, ever, for any reason, watch the local news. It’s horrific and moronic in so many ways and offers you absolutely no value in any way, shape or form. You don’t need to hear about murders, or child murders or gang violence or whatever terrible thing happened overnight. It’s not going to help you accomplish anything. You can get the sports scores and weather and traffic from an app. You also don’t need to know that there was an earthquake halfway around the world, so stay away from CNN too. People a hundred years ago didn’t know about any of that stuff and they lived their lives just fine.

But two weeks ago he wrote a post about how the Trump tariffs on Mexico would be a disaster:

And then poor Larry having to check Twitter to find out that his boss, the President of the United States, just impulsively decided to throw the economy of North America into a recession over the border fantasies being whispered into his ear by one racist psycho or another.

Markets are now pondering the threat of tariffs being used for all manner of disputes between Trump and the rest of the world. What if someone sends a tweet he doesn’t like? What if he’s snubbed at a summit? Do we just start blowing up trade agreements in retaliation?

So which is it? Are you following the news or not? If you try to score intellectual signalling points by not following the news, then I think it’s only logically consistent that you forfeit your right to complain about Trump’s policy. But in his defense, maybe he only means to ignore local news, which I agree is pretty useless. But I don’t think it’s possible to block national news unless you disconnect from the internet. Merely going to yahoo.com will inevitably greet you with a huge headline above or adjacent to a picture of Trump’s face, about how the US economy is doomed or how war with China or North Korea is imminent.

I’m certain there will be no recession. Wall Street also agrees, and the S&P 500 surged 4% this week.

Anyone who heeded Josh’s negativity regarding the tariffs would have sold at the bottom.

As I said in January 2017 when there were similar trade fears (the S&P 500 has gained 25% since then), the fate of the US economy does not hinge on some overhyped trade deals. The US economy and stock market boomed in the ’80s, which was before NAFTA. These tariffs hurt Mexico much more so than the US, but even the economic impact on Mexico is small. The day after the tariffs on Mexico were announced, the Mexico ETF fell 3%, which seems like a lot, but it is only within two standard deviations of daily volatility. If you zoom out the chart, it’s obvious that the effect can be likened to noise.

I stand by my prediction 3 weeks ago that the tariffs will not hurt the US economy, and second, that the tariffs are deflationary and give the fed the justification needed to lower rates again, which is both bullish for stocks and bonds. This is why the bond market has responded so favorably to the tariffs. Trump was able to score both a win on immigration and a win for the US economy.

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