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Dow Jones Needed Santa, Got ‘Tariff Man’ Instead!

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  • The Dow Jones Index has closed in the red for three consecutive days now. Last month, the index had its best month since June.
  • Many investors were expecting the uptrend to continue into the year-end with the typical Santa Claus rally. However, instead of “Santa,” stock markets got “Tariff Man,” a term President Donald Trump coined for himself a year back.
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The Dow Jones Index

The Dow Jones fell more than 1.0% yesterday and closed in the red for three consecutive days. Last month, US market indices, including the S&P 500 and Dow Jones Industrial Average, hit record highs. However, December has been a somber month so far.

While it’s too early to draw conclusions over the probability of a Santa Claus rally, US stock markets could instead see a sell-off this month. In Dow Jones December Outlook: A Crash or a Santa Claus Rally? we noted the downside risks to markets this month.

Phase One of China trade deal

Notably, optimism over Phase One of the US-China trade deal lifted the Dow Jones Index in October and November. However, frictions between the world’s two largest economies have risen over the last couple of weeks.

After signing bills supporting Hong Kong protestors, the US is stepping up on the Uighur issue as well. Yesterday, the US House of Representatives approved a bill that calls upon President Trump to toughen his stance on China’s treatment of Muslims in the restive Xinjiang region.

Along with trade issues, issues like Taiwan, Hong Kong, and Huawei have emerged as flashpoints in US-China trade relations. Furthermore, President Trump now looks comfortable with waiting for the trade deal until after the 2020 Presidential elections.

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The Dow Jones gets “Tariff Man” instead of Santa!

Exactly a year back, President Trump called himself a “Tariff Man.” His tweet spooked markets and we saw a major crash. The Dow Jones Index and S&P 500 respectively fell 3.1% and 3.2% on that day. What particularly spooked markets was that Trump made the comment a few days after meeting Chinese President Xi Jinping in Argentina at the sidelines of the G20 summit.

At this summit, the two leaders agreed to put the trade war on hold to make way for talks. Now, even as the Dow Jones Index needed Trump to play “Santa,” the president looks back on his “Tariff Man” avatar.

It’s not only China

While the US-China trade war gets all the attention, troubles have been brewing with US’s other trading partners as well. Trump reinstated Section 232 steel and aluminum tariffs on Brazil and Argentina. He has accused them of manipulating their currencies. US steel companies rose while the Dow Jones Index fell after the announcement.

Also, the Trump administration proposed tariffs on France in response to the digital tax that targets US companies like Google-parent Alphabet (GOOG). Furthermore, Section 232 tariffs on automotive imports have come back into the specter. Commerce Secretary Wilbur Ross told Reuters that “it may or may not turn out that there is any need for the tariff.”

President Trump and the Dow Jones

To be sure, Trump attaches a great deal of importance to stock market performance. He frequently tweets when the Dow Jones hits a new milestone. However, stock markets have made it clear in no uncertain terms that Trump can either play Santa or “Tariff Man.” The script does not has the option to play dual roles.

The next key event for markets is the looming December 15 deadline for the next round of China tariffs. So far, it is not clear whether Trump will go ahead with the proposed tariffs or put them on hold. Consumer goods, including Apple (AAPL) products, will be imposed with tariffs in this round.

However, if the tariffs are imposed, it could lead to a major market sell-off as that’s not the base case that investors are pricing in. So, will the Dow Jones get Santa or “Tariff Man” this Christmas? I’ll keep my fingers crossed.

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