There was a good chance that the markets would turn bearish this week after the U.S. administration imposed a fresh set of tariffs last week. This overshadowed the surge in housing construction and some decent corporate earnings.
After China promised to impose retaliatory tariffs on U.S. exports, President Donald Trump escalated the situation by issuing warnings of ‘additional tariffs’ if Beijing hit back with tit-for-tat duties on American goods. Consequently, the Dow was down almost 2% by Tuesday, but the market stabilized by Wednesday and the CBOE Volatility Index reading retraced close to 13.
In the end, the U.S. economy is doing better than the rest of the world, as is evident by the surging U.S. Dollar index, but if the administration continues to provoke key allies and trading partners, it will cap the natural bullish potential of the market.
Be sure to check out our previous week’s edition here, in which news of more rate hikes overshadowed the historic North Korea Summit.