Are Trump’s Trade Wars Fake News?

Hey! Good news!

Remember how the stock market used to be “false” and “phony” and a “big fat ugly bubble”, according to Donald Trump and all the doomsday blogs?

And remember how Donald Trump and all those same doomsday blogs used to say the jobs data was “fake” and “goal-seeked” when Barack Obama was President?

Yeah well since Trump’s been in the Oval Office, that very same stock market and those very same jobs numbers are miraculously real!!!!

Funny how that works, right?

So while two years ago you could have easily dismissed the February jobs data as a figment of the “deep state”‘s imagination engineered to promote the Goldilocks narrative that supports the low vol. regime, now you can rest assured that it is in fact an accurate reflection of the underlying economy.

Or, if you’re not one for nuance, you can just call it “JOBS!!!! JOBS!!!! JOBS!!!! #MAGA!!!!” as Dennison did:

JOBS, JOBS, JOBS! #MAGA pic.twitter.com/YAaqRcA7ZS

— Donald J. Trump (@realDonaldTrump) March 9, 2018

And thank God for that, because stocks really needed an excuse to keep rallying now that Trump has kicked off a global trade war.

Of course the all-out trade war was defused a bit on Thursday afternoon when Trump decided to simply exempt everyone from the tariffs he just signed.

Oh, and speaking of signing the tariffs, he damn near forgot to do that, which would have been hilarious. Something like this: “trade war averted after Trump forgets to sign order.” Shout out to Mnuchin for reminding him:

Secretary Mnuchin reminding President Trump that he needs to sign the tariffs before heading into the Oval for photos with guests. https://t.co/97JW3IKhMW pic.twitter.com/lUFszKUT5W

— Dan Linden (@DanLinden) March 8, 2018

Yeah, I know. It’s sooooo bad, right? But you know, I guess America gets the President it deserves.

In light of the trade war threat, it comes as no surprise that “trade conflict” was at the top of the list when it comes to things Goldman was talking to clients about this week.

There’s nothing particularly profound or new (per se), in the bank’s weekly account of client conversations, but there are some highlights that are worth mentioning.

First, the bank notes that aluminum and steel inputs “equate to just 1% of total US private industry gross output (i.e., revenues), meaning even significantly higher steel and aluminum input costs would have a limited impact on aggregate US corporate profits.”

That said, the downstream effects could be significant and autos and machinery stocks “will likely face margin pressures from higher domestic input prices.” Bottom line: you don’t want to be at the bottom right of this chart:

Goldman goes on to note the obvious risk which, again, is that this escalates. But even in that regard, the bank says the reaction has thus far been muted. To wit:

Although equity prices have moved in reaction to the proposed metals tariffs, investors do not appear concerned about escalating trade conflict. Firms that our analysts have highlighted as vulnerable to rising steel and aluminum input costs have underperformed the Industrials sector by more than 300 bp in the last two weeks. However, the share prices of agriculture firms, luxury consumer companies, and TMT firms with high imported COGS have generally demonstrated no signs of concern (see Exhibit 3). Similarly, baskets of US stocks with the largest international sales in general and specific exposure to Europe and China have all outperformed the S&P 500 in recent weeks (see Exhibit 4). Although the domestic-facing Russell 2000 small-cap index has led the S&P 500 by 300 bp this month, positioning and earlier underperformance appear more likely causes than trade concerns.

So who knows, maybe everyone assumes that Trump’s trade war is “fake news.”

But don’t tell any “very stable geniuses” that. Because they might be inclined to try and prove you wrong.

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