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My phone lit up with alerts early yesterday evening when the President-elect threatened tariffs not only on his usual targets, China and Mexico, but added Canada to the list. Stock and bond futures initially traded lower, but while bond prices have retained most of their declines after yesterday’s stellar gains, stocks quickly bounced back and resumed their advance.Does such talk even matter?In theory it should. have been the US’ top three trading partners annually from 2009 through 2023, combining for 42% of all US trade last year. Mexico ($798 billion in bilateral goods and services) is #1, followed closely by Canada ($773bn), with China a bit behind at ($575 bn). Tariffs would raise the costs of imports from those countries, and any retaliation would make our exports to those countries less competitive. Supply chains might adapt in the long run, but neither prospect would benefit the US economy in the near future. Higher-priced imports would create inflationary pressures, ’s () management, and less competitive exports would dampen economic activity. Higher prices and lower output , a prospect that should terrify stock investors.Investors are anything but terrified right now.If we closed at the levels we now see at mid-morning, the S&P 500 () would be at a new record after its 7th straight up day.It’s still early, and while the FOMC minutes arriving this afternoon could offer some sobering views about the Fed’s willingness to cut rates aggressively, this is nonetheless a stock market displaying a dearth of concern. Why might that be the case?Here are some theories:
In a holiday-shortened week with light volume and a limited number of external stimuli (the aforementioned FOMC minutes today and a bunch of economic reports including GDP and Core PCE tomorrow), the simplest thing to do is to follow prevailing trends. And if any inconvenient news can be interpreted in a favorable light, that is probably the simplest course of action when the prevailing trend is positive.More By This Author:
