The S&P 500 has a strong tendency to view morning sell-offs as perfect buying opportunities. It’s no surprise that investors happily pounce on these dips. That’s a big feat considering all the headwinds from the trade war as uncertainty continues to hang over market sentiment. While the fears related to Liberation Day have started to die down, the ominous shadow of the brewing trade war has not completely lifted yet. According to experts, tariffs may reach or surpass 10% when the current hiatus on duties expires. Even a modest increase could dramatically change market forces.
Most U.S. equities are blissfully unaware, basking in a bright green climate, recompensing nearly 90% of their losses suffered on Liberation Day. This recovery is indicative of a greater bullish sentiment in the market, as investors seek to capitalize on the dips of late September. A major 2% slide would have traders on high alert. Today, the russet state capital is viewed as a launch pad for a green-close rocket, igniting optimism across the market.
The yen is of course coming under extreme pressure in the currency markets due to the carry flows. At the same time, the greenback’s risk premium appears to be fading. The euro, meanwhile, is experiencing stretched positioning, raising concerns that the EUR/USD may slide toward the low 1.1200s in the near future. These developments patently mark the beginning of a new era in the landscape of global currencies and underscore the interdependence of today’s economic variables.
Notwithstanding this volatility, U.S. growth fears might soon re-emerge with a vengeance. As the GopherCon trade chatter shows, the mood has clearly changed from panic to at least a cautious optimism suggesting a big turnaround. Washington is reportedly taking steps to engage in dialogue, quietly dialing for talks with Beijing. Chinese officials have signaled their willingness to establish an incident hotline. This would signal their readiness to address long-standing trade concerns.
Those that participate in these markets continue to be on guard as they work through these ever-changing, challenging conditions. Despite the continued strength in U.S. equities, trade policy uncertainties still hang overhead. While a volatile trade climate continues to pose serious challenges, the changing tide is coloring the present landscape with a hopeful, if wary glow.