The market is betting Trump is all bluster and no action. The acronym “Trump Always Chickens Out” (TACO) is sure to piss the President off. Now, if the TACO trade is right, then Trump’s threats will lose their power as a negotiating tactic. Therefore, on the assumption Trump believes in protectionism – he may have to follow through on some of his rhetoric. Markets seem to think that won’t happen…
Tariffs
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Are We Closer to a Market Bottom?
It’s very difficult to know if we’re at or close to a market bottom. They rarely occur over the space of weeks – it generally takes months. But I cannot predict when (or what) the bottom will be. However, I think the ~20% correction from the market high (6147) to the low (4834) tells me a large portion of the selling is behind us. For example, we’re now starting to see equity exposure significantly reduced and cash levels raised. This is a good sign… as there are a lot less people to sell.
‘Trump Dump’ Offers Opportunity
It’s official… the stock market is now ‘on sale’. Panic selling has set in with the VIX trading above 45 – something we have only seen 7 times over the past 25 years. For those who resisted chasing extreme valuations the past 12 months – your patience has been rewarded. Valuations have come down. In turn, the longer-term risk reward is now more attractive than what it was only a couple of months ago. But these are rare times. For e.g., it was the only third time this decade that the S&P 500 shed more than 10% in two days.