Last night came the big news that Trump is introducing a certain tariff break for the next 90 days for all countries except China. This causes the US stock market, which was still open, to rise brutally.
Tariff break and the stock market’s positive reaction
The suspended tariffs will take effect immediately and will last for 90 days. Only China will not receive relief. Instead, Trump has chosen to raise tariffs on China to 125% from 104%.
Three hours before this was published, Trump wrote: “THIS IS A GREAT TIME TO BUY”
And yes, that was indeed a correct statement because just three hours later he announced his 90-day customs break.
If this isn’t manipulating the market, I don’t know what is…
Many believe that the tariff war is far from over. That this is just a short relief rally that will soon be gone. At least the world will get a huge breathing space for 90 days, which is actually quite a long time considering how crazy fast everything has gone in the last few weeks.
The world is now more likely to believe that Trump is not serious about his actions. Right now, he probably just wants to get China to back down, but the question is how far he is prepared to go. Considering that he is now pausing the tariffs for 90 days, that doesn’t seem too far at least.
What we know now is that we are preparing for a pretty nice upward price hike anyway. Then the question is how long this will last, as you can see today. The markets went down again.
How should one act?
Now it’s getting pretty tricky for those who may have sold a couple of days into the race but still managed to parry the biggest race days. Should you buy back, or is this just a small peak before it really crashes down? Can the event be compared to when the vaccine came during Covid-19 and the stock market just went up and up again?
If you buy back now and it turns out that the uptrend only lasted 1 max 2 days before a new decline comes – should you sell again?
The pattern will likely repeat itself and the risk of you getting it wrong just increases and increases. Maybe you managed to get it right this time? But in the long run, looking at a lot of turbulence, you will probably be the loser.
That’s why I think you should do the easiest thing you can and just sit on your holdings. If you have money left over, you can buy.
A Bigger picture:
If you look outside whats happening on a micro level and zoom out to marco level. I see if this volatality continues along with;
) Lower expected growth .
2) Higher inflation (or a sticky one).
3) Unemployment increases.
Then we are set for STAGFLATION. And this is a tougher scenario to tackle for the world economies. More on stagflation in coming week articles.
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