If you find yourself wondering why Ms. Market is fluctuating back and forth lately, you haven't been paying attention. Cutting to the chase, this market is all about the tariffs and the potential for a global trade war.

There are arguments on both sides here (hence the back and forth action in the market and on the charts) and the odds on the outcome continue to shift based on the latest headline, comment, or tweet.

The bears are happy to tell anyone willing to listen that the President's plan to slap tariffs on steel, aluminum, and a basket of yet-to-be-named items will spark a series of tit-for-tat responses from trading partners around the globe. And, of course, such actions will surely impact the globally synchronized economic expansion - and not in a good way.

Godman's Chief Economist, Jan Hatzius, said the tariffs would become problematic and that more could be coming. Super.

On the other side of the aisle, our heroes in horns remind us that the deal isn't done and that until the ink is dry on the order, things can change. As such, longer-term investors should treat the current brouhaha as "noise" and continue to focus on the fundamentals. Put another way, the idea is to keep on buyin' those dips!

However, the secular bull market turns 9 years old this week and the fact is that all good things come to an end eventually. As such, those of us in the risk management business must continue to stay alert for changes in the environment. And while I don't expect the current soap opera playing out in D.C. to become the turning point for the current bull run, stranger things have happened over the course of my career. So... like it or not, we have to stay on top of the blow-by-blow relating to the tariff saga.

On Yesterday's Episode...

We left off Tuesday with stocks rallying on the thinking that the chances of tariffs actually being imposed had fallen. But then Mr. Cohn announced his resignation, which was seen as a sign that the President wasn't backing down. Lovely.

Futures prices dove, and the negative Nancy's came out of the woodwork Tuesday evening. And as you might suspect, stocks opened lower yesterday morning. The thinking was that this was bad, and it was gonna get worse.

The Dow dropped 350 points Wednesday morning and the technicians busied themselves calculating where the important breaking points were located.

But then it happened. A hint that the White House stance may be softening.

More specifically, White House Press secretary Sarah Huckabee Sanders told reporters that the end is in sight and that Canada and Mexico might get exemptions from the tariffs on steel and aluminum.

"We expect that the president will sign something by the end of the week. And there are potential carve-outs for Mexico and Canada based on national security and possibly other countries as well based on that process," Sanders said. "That will be a case-by-case and country-by-country basis. It would be determined whether or not there is a national security exemption."

Ah, "national security," that's the ticket.

Stocks rallied from there and the Dow finished 266 points off the mid-morning low. So, the potential for the tariffs to wind up being watered down seemed to sit well with investors.

Oh, and don't look now but the semiconductors as well as my fav internet ETF (NASDAQ: FDN) as well as a social media ETF (NASDAQ: SOCL) finished at new all-time highs. For the record, that generally doesn't happen when bear markets are getting started.

This Just In...

Reports indicate that 107 House Republicans have sent a letter to the President asking him not to impose tariffs and to focus instead on "China's unfair practices."

In the letter, the lawmakers said, "We urge you to reconsider the idea of broad tariffs to avoid unintended negative consequences to the U.S. economy and its workers."

So... While this drama isn't likely to end until the fat lady sings (which is purportedly slated for Friday), for now at least, it looks like the tariff threats may wind up with significantly less bite than originally thought.

Thought For The Day:

Lean to trust an idea whose time has come...

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: FDN - Note that positions may change at any time.

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