Dow Struggles Wednesday In the Face of Uncertainty
With so many major stories in the news that could potentially affect stock markets, investors are showing at least a little reluctance to propel our market surge further.
It’s not that stock markets can’t manage uncertainty, and managing uncertainty is actually their fundamental function, to take all the incomplete knowledge that we have about the future that may affect stocks and look to put a price on all of it.
There are two different types of uncertainty though, what may lead to a better outcome and uncertainty that mostly forebodes undesirable outcomes. The current tensions between India and Pakistan is among the latter, as nothing good for the market can come of something like this other than seeing whatever downward pressure that such worries bring get resolved and alleviated.
India and Pakistan are both nuclear nations, and their nukes have each other’s names on them. These countries have been bickering for a very long time, mostly fueled by border disputes that have never been resolved to the satisfaction of both parties.
Seeing India and Pakistan engage each other militarily is not a pleasant notion at all, and the situation has escalated to the point where we’re not only seeing some conflict on the ground but in the air as well. India conducted bombing raids on Pakistan and both countries shot down an enemy aircraft in the process.
Calls are being made for the countries to stand down, but even the influence of the United States can only do so much to quell the animosity that these two countries have for each other. Keeping it beneath the threshold of armed conflict is the goal, and there’s some real work to be done to get the parties to lay off one another.
This would have to get much more out of hand for markets to be particularly affected, especially U.S. markets, but it does at least have the potential for this if progress is not made and the conflict continues to escalate.
Donald Trump At the Center of Several Big Issues
There’s also Donald Trump, who is involved in several fronts of uncertainty. There are the trade talks with China to account for, which do seem to be going well, and Trump’s affirmation of patience certainly is being well received by markets. This situation not only has the potential to reverse the negative effect that the current trade battle has brought us, but may end up improving the situation from where we were if a prosperous enough agreement can be reached.
While talks are said to be progressing well, the American side is telling us that there is much work left to be done. With a deal of this great significance though, we may expect that the terms are complex enough to require extended deliberations. As long as both sides show patience, which we have seen so far, things remain upbeat on this front.
There is also the efforts of the Democrats to either seek to impeach Trump or at least to look to seriously discredit him, and in this drama’s latest episode on Wednesday, Trump’s former attorney Michael Cohen unleashed a barrage of unkind remarks and evidence against his former client in his testimony before a Congressional committee.
Trump’s meeting with North Korea leader Kim also has him in the news, but this issue appears to only have the potential for good as far as the markets are concerned, and as far as everyone else is as well. Trump does risk criticism should the talks not progress as some may hope, but any progress here would we welcomed by markets, even promises of progress.
The attitude and actions of the Fed have come across as very market friendly, but this enthusiasm was dampened by comments of Fed Chair Powell in testifying to Congress. Powell expressed some worry about inflation, more than he has showed lately. There is already concern that some at the Fed are in favor of increases, and this just adds to that momentum.
Where We May Be Headed Next
How these issues all play out will define where we are headed in the near term, the result of the sum of the effect of these conditions as outlooks change and the events unfold.
For now, the effect of the current outlook has us still pretty stable, and while our mini-bull market of late has shown signs of tiredness, we’re not at any point yet where we could say that the balance of concerns has tipped to the bear side.
The Dow finished Wednesday down 0.28%, a fairly mildly negative day for stock prices. The S&P 500 fared a little better, only giving up a pretty meaningless 0.05% while the Nasdaq actually eked out a tiny gain of 0.07%.
Trading has been pretty flat overall this week, so we are treading water on that time frame anyway, but with two trading days left in the week, things can change. Since the longer-term trend is upward, the odds would be on a continuation of that, but the probabilities of the reverse have moved upward to be sure.
There does not seem to be much out there that could have us moving very much in either direction though, and the real odds are that we’ll probably end up not far from where we are now, which will not really serve to shed all that much light on where we may be going.