Dow Wavers Because the Fed Won’t Rescue Wall Street from Trump

Posted in: Market News
December 9, 2019 2:36 PM UTC

The Dow wavered because this week's Fed meeting won't save the stock market from Trump's dangerous tariff gambit.

  • The Dow struggled to build on last Friday’s monster rally.
  • There’s a crucial tariff deadline approaching.
  • This week’s Federal Reserve policy meeting won’t rescue stocks from Trump.

US stocks traded cautiously on Monday, preventing the Dow from building on last Friday’s monster 337-point rally.

There’s a Federal Reserve policy meeting coming up this week, but investors don’t expect the Fed will rescue the stock market from trade-related uncertainty by delivering another interest rate cut.

Dow Hesitates; S&P 500 and Nasdaq Lack Conviction

None of Wall Street’s major indices traded with the slightest bit of conviction on Monday. The Dow Jones Industrial Average declined 59.13 points or 0.21%, dropping the index down to 27,955.93.

The Dow failed to build on last Friday’s 337-point rally. | Source: Yahoo Finance

The S&P 500 dipped 4.39 points or 0.14% to 3,141.52.

The Nasdaq mostly traded sideways, ticking down 3.22 points or 0.04% to 8,653.3.

Trump & China Edge Closer to Tariff Cliff

Stocks struggled as the US-China trade war edged closer to Sunday’s tariff cliff without any more hope of a trade deal – or at least a cease-fire on new escalations.

With new tariff hikes just six days a way, a high-ranking Chinese official said that Beijing wants to reach a trade deal “as soon as possible.” Still, he didn’t give investors any assurances that either China or the United States had any intention of backing down from hardline stances on core issues, such as mandatory tariff rollbacks.

Speaking earlier today, Ren Hongbin, China’s assistant minister of commerce, continued (via South China Morning Post):

China hopes the negotiations can keep moving forward based on the principles of equality and mutual respect and reach a result that could satisfy all parties as soon as possible.

Dow Jones bulls remain confident that President Donald Trump will flinch before the Dec. 15 tariff deadline. Trump has seen what happens to the stock market when he inflames US-China tensions. And investors have seen how much Trump loves to see stocks trading at record highs.

“That’s the biggest thing in the room next week. I don’t think he’s going to raise them. I think they’ll find a reason,” James Paulsen, chief investment strategist at Leuthold Group, said in remarks cited by CNBC.

But Paulsen added that with Trump, you could never be sure: “I think he goes out of his way to be a wild card.”

A deadline extension may be the prevailing forecast, but that still leaves the Dow with substantial downside risk. And unlike in previous months, that downside risk won’t be offset by new interest rate cuts.

Stock Market Bulls Aren’t Excited About This Fed Meeting

The Federal Reserve’s policy board will meet this week, but there’s likely to be little fanfare on Wall Street. After interest rate reductions at three straight FOMC meetings, investors believe the Fed will shift back into neutral.

According to CME’s FedWatch Tool, Fed funds futures imply a 99.3% probability that interest rates will remain unchanged following the upcoming FOMC meeting.

The markets don’t expect a rate cut at this FOMC meeting. | Source: CME FedWatch

The other 0.7%? That’s hedging against the slight chance that the Fed raises interest rates in response to relatively stable economic data.

ING Chief International Economist James Knightley predicts that weak growth will ultimately force the Fed to reduce rates twice more during the first half of 2020, but Fed funds futures imply just one cut in 2020 – and zero until at least September.

This article was edited by Sam Bourgi.

Last modified: January 22, 2020 11:41 PM UTC

Josiah Wilmoth @Y3llowb1ackbird

Josiah is the US Editor at CCN.com, where he focuses on financial markets. He has written over 2,000 articles since joining CCN.com in 2014. His work has also been featured on ZeroHedge, Yahoo Finance, and Investing.com. He lives in rural Virginia. Connect with him on LinkedIn or email him directly at josiah.wilmoth(at)ccn.com.

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