Here we go again. The market's biggest fear - a trade war with China (and others) - appears to be taking shape. At least that's what the 550-point dive in U.S. stock futures tell us this morning.

Some might have been encouraged by yesterday's rather surprising rebound of nearly 400 points on the Dow. However, technicians tell us that the upside moves have been weakish lately and all have been met with renewed selling in relatively short order. Rinse and repeat.

So, after a one-day reprieve, the bears are going to get back at it this morning. At issue is China's retaliation to the $60 billion in tariffs the President recently imposed the country's goods. Beijing had announced that further retaliatory efforts would be forthcoming and today they delivered. New tariffs on 106 US products, including soybeans, cars, whiskey, and chemicals.

Although the effective date of the new costs was not announced, China's Ministry of Commerce said that the tariffs will target up to $50 billion in annual sales.

The problem for the market is we now appear to be in a tit-for-tat spat with Beijing as China's new tariffs come less than 24 hours after the Trump administration unveiled a list of Chinese imports they aim to target next.

The bottom line fear is the game with China will escalate and wind up costing the U.S. economy some of the precious growth that has been anticipated/discounted by the stock market over the last year.

For example, Commerce Secretary Wilbur Ross said this morning that the new tariffs imposed by China will amount to about 0.3% of GDP. As such, Ross says the new costs do not represent a threat to our economy. "It's relatively proportionate to the tariffs we put on based on the intellectual property," Ross told CNBC's Joe Kernen this morning. Ross went on to suggest that investors shouldn't fret, "It's hardly a life-threatening activity," the head of Commerce opined.

Perhaps the key point Mr. Ross made this morning is these tariffs are not surprising and are likely to be negotiated away in the coming months. Ross suggested that the President is a "lifelong deal maker" and is attempting to unwind a trade deficit that several presidents are responsible for creating.

Ross also said he was surprised by Wall Street's initial reaction. "I'm frankly a little surprised that Wall Street was so surprised by it. This has been telegraphed for days and weeks."

However, the 500+ point dive in futures before the market open suggests that traders were indeed surprised and/or worried about what comes next. Or... that the algos saw the headlines, which triggered a round of sell programs and there is no one willing to step in front of the high-speed trend following trade these days.

Lost in the Shuffle

Lost in the trade war shuffle this morning is another strong economic report. ADP/Moody's Analytics announced that the private sector added 241,000 new jobs in the month of March. The job creation total was well ahead of the Wall Street estimate for 205,000 jobs and marked the fifth straight month that private sector job growth topped 200,000.

Mark Zandi, Moody Analytics' chief economist responded to the data by saying, "The job market is rip-roaring." Zandi went on to add that the labor market continues to tighten. "Monthly job growth remains firmly over 200,000, double the pace of labor force growth," he said.

Lest we forget, this report comes just two days before the Big Kahuna of U.S. economic data - the monthly Nonfarm Payrolls report. Presently, analysts are looking for job growth in the U.S. to total 185,000 for March and for the unemployment rate to fall to 4.0% from 4.1%. As a reminder, the ADP report covers only the private sector whereas the Labor Department's report includes government jobs as well.

Summing Up

So, there you have it. While the fundamental backdrop for the stock market continues to look pretty darn strong, traders are apparently moving on and worrying about the future. A future where policy missteps by either the White House or the Fed could wind up killing the robust economic growth that we've waited so long to see. Silly, yes. But this is the game that is being played right now.

Speaking of the games being played, with computers in almost complete control of the game on an intraday basis, we can probably expect the wild ride on Wall Street to continue for a while. Good times.

Thought For The Day:

The time is always right to do what is right. -Martin Luther King Jr.

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: none - Note that positions may change at any time.

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