Allies or not, no one will be exempt from Trump’s tariffs, and Europe’s threats of retaliation have only resulted in a counter-move by the U.S. president, while even the market’s diehard bulls are stepping out of stocks.
By close on Friday, the Dow had plunged 1,100 points in three days, this week looks set to sustain losses.
On Sunday, White House officials made it clear that no country will be exempt from the proposed 25-percent tariff on steel imports to the U.S. and the 10-percent tariff on aluminum imports—not even America’s biggest allies, Canada and the United Kingdom.
While the specter of rising interest rates and inflation and recent comments by new Fed chairman Jerome Powell hit the market hard, U.S. protectionist policies are emerging as the final nail in the Dow coffin, signaling, for many, a definitive end to the nine-year bull run.
And a full-blown trade war is coming closer to reality:
Taking to Twitter on Saturday from his Florida-based Mar-a-Lago resort, Trump took trade war rhetoric to the next level in response to Europe’s vow of retaliation.
“If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” Trump tweeted.
The viral back-and-forth prompted long-time Wall Street bull Jeffrey Saut, chief investment strategist of Raymond James, to say that the sidelines are the safest place to be.
Saut is waiting for clarity, and while he’s tamed the bull, he’s not ready to embrace the bear just yet.
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"If this spills over into a full-blown trading war, then I have no idea where the bottom is going to be in this," Saut told CNBC's Trading Nation on Friday. "I'm just kind of sitting on my hands right here until the dust clears."
Still, Saut says that economic and earnings growth strength could mean a fundamentally strong picture for stocks, coupled with bullish under-investment.
"I do think it's noise in the short run. I think it's going to present a buying opportunity in the long run," the investment strategist said.
Would he buy stocks now, though—definitely not. "I am not going to step in here and buy a falling knife," Saut said.
Are there any bulls left out there?
Probably—if only because there may still be a faint light visible at the end of the trade war tunnel.
After all, Ronald Reagan went down a similar protectionist path, and the market didn’t have a meltdown.
And there is hope, still, that the tariffs won’t be imposed.
But the anti-tariff camp is big, and growing, to include Trump’s Republican allies.
Federal Reserve Bank of New York President William Dudley warned last month that the protectionist tariffs would be a dangerous dead end because “trade has played a key role in nearly all of the high-growth success stories since the middle of the last century”.
“While the gains from a liberalized trade regime are not guaranteed, the alternative of trying to achieve a high standard of living by following a policy of economic isolationism will fail,” Dudley was quoted as saying
By Fred Dunkley for Safehaven.com
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