Based on all the "bad news" we've seen, markets have not budged. Generally, when markets don't go down on bad news, they are going higher.
Let's Review Some Events That Should Have Had Markets Lower
If markets were following politics, they would have been down a long time ago.
The Election of Donald Trump
Famous prognosticators called for a 5-10% crash if Donald Trump was elected. After markets took an overnight swoon after the elections they turned around by the open to start their breakout move.
Trying to start a trade war with China
President Trump has threatened plenty of times to call China a currency manipulator. China has returned harsh words going as far as threatening all-out war. The markets haven't really budged.
Calling Japan currency manipulators
Last week, President Trump said:
"You look at what China's doing, you look at what Japan has done over the years. They - they play the money market, they play the devaluation market and we sit there like a bunch of dummies."
In other times, this could have been a major hit to markets. Jawboning about currencies can lead to a currency war. That can destabilize markets. Markets haven't really budged.
The world stood still for a few days wondering what's going to happen to travel. If people stop moving so easily air travel could slow. Markets held up.
President Trump said the dollar is too high
Most investors associate strong US markets with a strong dollar. The president's calls to make the dollar weaker did not hit equity markets.
Threatening war and sanctions against Iran
This could have been a major threat to the economy by surprising oil prices higher. Putting Iran "on notice" and Iran testing missiles could have easily hit markets. Markets didn't budge.
We may have missed a few other events that could have just as easily rattled markets. But they all did not.
But Still The Market Is Up
Market, up in the face of many political challenges, tells us that it is not moving on politics. If it were, it would be much lower. The market is moving on something else and it's moving higher.
There are two main points.
- "Action" is incredible.
- We need to figure out why the market is moving up?
When you expect one move in markets and the other happens that tells you it's going in that direction. When everyone says short a stock and it doesn't go down on news which way will it go, it will go up.
We have the same setup with this market. No matter who says markets are going down on geopolitics markets go up. That is called good "action." Action is the trader's study how markets respond to news. These markets are acting great to terrible news. That is "good action."
Why is the market going up?
The second point to figure out is why the market is going up. We learned from the famous trader Mark Fisher who wrote Logical Trader that, when you don't know why markets are going up, stay long until you figure it out.
In this case, however, you do have a few factors that you can point to for the rise in markets.
- Low rates
- Low inflation
- Economies picking up globally as the BOJ and ECB have mentioned
That is not a terrible scenario.
Trump Keeping People Skeptics
Because President Trump is unorthodox in his approach to politics he's keeping many investors sidelined expecting the next tweet-crash. There is a major reason investors still don't want to enter markets.
As we've seen with the travel ban, the US is a system of checks and balances, President Trump will get some measures to pass and some he will not. The system is protecting against black swans to some degree.
If political gridlock comes to pass, tax cuts, fiscal spending and legislative roll-back expectations could be disappointed. That said, if government is busy with itself, markets can focus on easy monetary policy, low rates, and a global pickup.
If markets were at the mercy of politics they'd be down long ago. They are not. That is a powerful sign called "good action." That means it can go higher on decent fundamentals.
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