Following a predictable technical rebound on the S&P500 two hundred days moving average, Wall Street is back to the reality of fears overcoming the chances of a FED rate cut in September. Adjustments to valuations are due for now, given that it’s not a certainty that the U.S central bank will rollover to Trumps demands, but even if they do capitulate to the president strategy, it’s not guaranteed that lower financial costs and maybe some more quantitative easing will be the cure for so many things that could go wrong in the trade war arena. Not to mention all the other needles in front of the bubble, like having 44% of the developed economies sovereign debt at negative yields and the Euro-area economy on the brink of a recession.
Traders need to keep in mind that the trade war issue is just a means to an end so that Trump can get re-elected and the U.S can somehow delay China´s dominance in the next decade, regarding technology at least. The topics of access to the Chinese market and especially the intellectual property skirmish between the two biggest economies are not going to be settled anytime soon. Earnings this year have been around flat to slightly negative so far and expectations for the third quarter have been severely reduced, so no help from that department to the Bulls court, meaning, trade carefully in the next couple of weeks.
Photo by Josh Frenette.