What Happens When You Actually Crunch The Numbers Of Cost Of Tariffs

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Posted: Dec 04, 2019 11:09 AM
What Happens When You Actually Crunch The Numbers Of Cost Of Tariffs

Source: AP Photo/Matt Rourke

Yesterday, I had the honor of interviewing Vice President Mike Pence in the Vice President’s Ceremonial Office at the White House. I asked about the role of tariffs now and in the future. It’s clear the administration believes in the role of tariffs, and points to them as a critical component of the resurgence of the American economy, along with lower taxes, fewer regulations, cheaper fuel, and pressing hard for free and fair economic relationships around the world.

I think it’s what the media gets wrong about the administration. I read an article that derisively suggested President Trump was dealing with an ‘Id and Ego’ situation, where the Tariff Man is constantly at war with the Dow Man. Folks, $360 billion in tariffs are in place, and the Dow has done very well. I think when push comes to shove, China might be careful not to listen to the American media because this administration will put American workers above corporate profits and howling of the elite Establishment.

If you crunched the actual numbers of the cost of tariffs (essentially a tax) and assumed it all fell on America (it doesn’t), it would be the proverbial drop in the bucket in our $20 trillion economy. The biggest push back has been businesses determined to upset the economy enough to spook the administration, but it would happen. So, it makes these Wall Street temper tantrums almost comical, except you can push one domino too many and create an uncontrollable panic.

Again, I don’t see this happening.

The Dow’s Wild Ride

The case in point was yesterday’s session where the market mildly reacted to news that President Trump is fine with resolving the trade battle after the 2020 elections, reminding everyone he never set a resolution deadline. That is true. The fact is Wall Street assumed December 15, 2019, was the deadline because that’s when tariffs are implemented on the rest of trade imports from China not already levied. There is still a great chance we could see tariffs delayed and the “Phase One” agreement this year.

Meanwhile, check out yesterday’s session - Dow Jones Industrial Average:

  • Opens: 27,502
  • Low: 27,325
  • High: 27,524
  • Close: 27,502

The Dow finished right where it started; after the early morning fury of selling, as buyers began to sift through the haze to find bargains.

The market breadth was lopsided except for the down volume that didn’t reflect a market in serious jeopardy, especially the NASDAQ Composite where there were only 1.08 billion shares on the downside versus 933 million on the upside.

By the way, the key Dow support was an old resistance from July and September: 27,335.

S&P 500

Energy continues to suffer while plunging yields sent buyers into the Real Estate and Utilities sectors and out of Financials.

Symbol

Select Sector SPDR Fund

Last

Change

% Change

Volume

XLC

Communication Services

51.96

-0.10

-0.19

3.96 M

XLY

Consumer Discretionary

120.22

-1.22

-1.00

4.53 M

XLP

Consumer Staples

62.04

-0.10

-0.16

20.54 M

XLE

Energy

58.01

-0.88

-1.49

17.13 M

XLF

Financials

29.54

-0.42

-1.40

67.89 M

XLV

Health Care

98.83

-0.22

-0.22

7.82 M

XLI

Industrials

79.81

-0.88

-1.09

20.42 M

XLB

Materials

59.06

-0.38

-0.64

8.66 M

XLRE

Real Estate

38.25

+0.31

+0.82

3.58 M

XLK

Technology

86.13

-0.77

-0.89

11.25 M

XLU

Utilities

62.81

+0.17

+0.27

12.93 M

 

Today’s Session

Equity futures have been higher all morning long in cautious trading.  There have been a couple of dips, including some pullback after the big miss on the ADP Employment report.  The 67,000 print was less than half the 150,000 many expected.  The report continues to underscore how difficult it’s becoming for the smallest businesses, those with fewer than 20 employees.   For those businesses, finding qualified workers and being able to pay them is a huge hurdle.

Meanwhile, the very largest businesses 1,000+ continue to add a steady stream of workers.

ADP Employment Report

1-19 employees

1,000 + employees

2019M01

31,974

20,341

2019M02

31,978

20,400

2019M03

31,983

20,440

2019M04

32,004

20,464

2019M05

31,969

20,526

2019M06

31,942

20,558

2019M07

31,924

20,620

2019M08

31,948

20,661

2019M09

31,952

20,686

2019M10

31,939

20,722

2019M11

31,925

20,736

 

I’m not worried, but I continue to think there will be more noise about the yield curve as it flattens more.