The markets have a new problem. Positive talk on trade is starting to play out as a market mover.
Stocks rose in Tuesday’s premarket session after President Donald Trump tweeted to “watch for an announcement” on China and trade.
The optimism lasted for all of an hour after the open, though. Stocks started coming off their highs, and many of the big industrial stocks like Caterpillar and Boeing were flat to down just before noon, as were energy, bank and technology stocks.
Many traders now believe that the constant stream of Trump tweets on positive trade negotiations is no longer having the magical effect it had weeks ago.
“These little baby steps are not working,” Alec Young, the managing director at Global Markets Research, told CNBC. “The Trump comments are not removing uncertainty” on trade and tariffs. “If you don’t think it will be fixed in the next several weeks, why buy on these tweets? You are not getting rewarded.”
Stocks took a more decisive leg down at noon, when the president appeared on television from the Oval Office during an extraordinary meeting with House Minority Leader Nancy Pelosi and Senate Minority Leader Charles Schumer. During the televised meeting, Trump adamantly declared that “If we don’t have border security, we will shut down the government.”
The combative exchange between the president and the Democratic leaders did nothing to convince investors any positive legislation, including infrastructure spending, might come from the next two years.
UBS’ Art Cashin told CNBC the constant back and forth between optimistic pronouncements and reality is wearing on markets. He compared it to the 1980s television ad in which an elderly woman points to a fast food burger and asks, “Where’s the beef?”
“The markets are going, wait a minute, we’ve heard this before, the President seeming optimistic,” Cashin said. “I think [the markets] are saying we need more than that. It’s the old Clara Peller ‘Where’s the beef” story. You’re telling me it’s there, but I really need to see some beef after a while.”
The longer a major macroeconomic uncertainty hangs over the market, the greater the toll it takes. Even if the uncertainty does not change, it takes a toll on markets over time.
The trade story is starting to take a much clearer toll.