@theMarket: Markets Churn As Trump Roars

It was a week where the White House provided a steady stream of "what ifs." Iran, Greenland, credit card caps, Fed subpoenas, and aid for home buyers were just some of the topics floated. Take it all with a grain of salt.

 

The overall market indexes traded in a tight range, but by the end of the week, they continued to edge higher. If you were invested in cyclical areas, you did far better than that. As I have pointed out in my last few columns, a rotation away from the concentrated group of tech stocks is well underway into cyclical areas like materials, industrials, health care, consumer discretionary, and small-cap stocks.

 

I think that will continue as tax cuts, increased government spending, and a reduction in tariffs take hold in the economy. Remember, this is an election year, and as such, the administration is determined to short-circuit the "affordability" issue because it has played so well in GOP election defeats in recent years.

 

Some examples include the president's desire to cap credit card interest rates at 10 percent for one year, which would require congressional approval. Top Republicans are already resisting such a move. However, it did not stop traders from trashing a whole host of financial stocks on this "what if" scenario.

 

Trump also wants to reduce rising electricity prices by opening a bidding war for tech companies to fund new power plants, and he also proposed "the great health-care plan," which he claims will lower drug prices, increase transparency, and redirect federal subsidies to consumers.

 

On the housing front, the president wants to spend $200 billion or more in buying mortgage bonds through Fannie Mae and Freddie Mac, the two government-controlled mortgage agencies. The president hopes the move will reduce housing costs by lowering mortgage interest rates.

 

Speaking of interest rates, the DOJ Fed subpoena announcement was meant to put pressure on Chair Jerome Powell to vacate the office sooner rather than later. The rather uncharacteristic response from the beleaguered central bank chairman on social media prompted the White House to backpedal on that move almost immediately.

 

Trump also said that he wants to bar Wall Street financial institutions from buying single-family homes. Professional house flippers are believed to have artificially inflated housing prices in many communities. It is not clear to me if that would have a big impact on the housing market, but one can hope. In any case, housing stocks took off after Trump's social media post.

 

And while these trial balloons are floating out of the Oval Office windows, Trump's gunship diplomacy is forging full steam ahead. Venezuela was last week's story, largely replaced by threats of military action in both Iran and Greenland. While equity and bond markets took this saber-rattling in stride, the precious metals and oil markets spiked higher as the fear factor of geopolitical turmoil took hold.

 

To me, Trump's escapades overseas are part of the mercantilist tone of his administration. For those who missed my December 2024 column "Is mercantilism the answer to our trade imbalance," I suggest you read it. It begins with:

 

"For those few of us familiar with the term, mercantilism was the dominant economic system in Europe from the 16th to the 18th centuries. It was a world where it was believed that global wealth was fixed and finite. To become powerful, a nation needed to acquire as much wealth as possible. Back then, a nation's wealth was measured by how much gold and silver it accumulated."

 

Certainly, in mercantilist terms, the controversy over strategic metals fits the bill as does oil in the case of Venezuela and Iran when discussing wealth as fixed and finite.

 

Markets feel a bit tired to me. We still have not received a verdict on the tariff question, but at the end of the week, I noticed some overdue profit-taking in the mines and metals sector.

 

The threat of additional tariffs on metals may have fueled some of the recent gains in that space. A negative ruling by the Supreme Court might create further volatility in that area and in other cyclical sectors that have benefited most from the rotation we have seen over the last two weeks.

 

I would not chase equities here. Instead, there may be a buying opportunity if we pull back in areas such as small-cap stocks, industrials, and miners of gold, silver, copper, platinum, and palladium. Emerging markets are also hitting new highs. China may be worth a fresh look as well.