What will tomorrow bring?

Markets movements and data/news have a funny relationship.  Different data points become the focus of market movements, and those data points change over time.  This relationship between markets and data also contains the layer of "good news is bad news, bad news is good news, and bad news is bad news, and finally good news is good news.  In each market cycle and sometimes each cycle, which of the four choices will prevail.  After market moves, analysts are quick to point out why markets moved but predicting before is a crap shoot.  But sometimes in a crap shoot you win.  Consistency in predictions before market moves are mostly luck and do not repeat.  

 

When I started in this business in 1984, Milton Friedman was, and his view of money supply was key movers of markets-M-! and M-2.  Before Milton Friedman it was stagflation and Paul Volcker posing interest rates to unseen levels. Reagan was the tax cutter even though the budget deficit soared during his administration because we learned about supply side economics and Arthur Laffer.  That idea said cutting taxes would stimulate growth so we would grow out of our deficit. Clinton balanced the budget for the first time in many years.  More recently during Covid and President Biden, inflation figures monthly were important in moving markets along with positive GDP growth.  Trump, I brought animal spirits to market as taxes and regulation were cut with supply side economics prevailing again.  Economic growth continued at a consistent pace throughout these administrations with only Clinton balancing the budget and all other administrations continuing to grow the deficit.  So, the data that seems to move markets now are the state of tariffs.  For instance, today, Tuesday the Treasury Secretary said that the tariff war with China is unsustainable and will be negotiated down soon.  That is after Monday, a day when the trade war was escalating with no end in sight causing markets to tumble.  Fundamental indicators like earning and inflation seem not as important.  Even though predictions for a recession are increasing based on analyst odds, the data are lagging and have not shown up in the recession camp.  It is early and data could be distorted by businesses anticipating tariffs, so they increased inventory.  What will tomorrow bring?