The markets were up today despite the headline trade news and, most likely, a handful of hung over traders. Trading volume was lower as a result of the holiday yesterday, but nevertheless the Dow gained 181 points and closed at 24,356. Q2 earnings season is underway, and despite impressive earnings reports investors are mostly focused on future projections. This has been very evident in the fact that profits are growing seven times more than company stock prices – the S&P was up 2.9% in Q2 while company profits were growing at about 20%.
Much of the headwind for stock prices has been the headline trade news. President Trump said he will impose $34 billion in tariffs on Chinese goods at midnight, Friday morning. In response, China said they will respond with a reciprocal amount of tariffs, which will be aimed predominantly at U.S. agricultural products. And that may not be the end of the trade spat as President Trump has threatened further tariffs if China does impose these retaliatory tariffs.
The June jobs report will be out tomorrow and it’s expected to show a little less job growth than expected. Low unemployment has caused the job market to tighten, and it’s making it difficult for companies to attract talent. As a result, economists are watching to see if companies are increasing pay in order to meet their needs. Wage growth could create inflation which would keep the Fed hawkish on interest rates.
Italian markets are concerned over the government’s new policies. The new administration plans to reduce taxes and have a universal income. Italy’s current spending plan has them on pace for a debt ratio of 130%, and as a result bond prices are declining.