Profit Taking, Emerging Markets, And Tariff Concerns Weigh On Stocks
Stocks were lower yesterday with all of the major indexes under pressure.
There was no 'one thing' to point to, just generalized weakness continuing from last week, after the previous 5 weeks saw strong gains.
I would chalk it up to just a little bit of profit taking now that earnings season is over, a little bit of emerging market weakness, and a little bit of tariff tension.
I would put the emerging market weakness stemming from Turkey's losses as a result of US sanctions as the least worrisome. Turkey's economy is a tiny fraction of the US economy so I don't see any contagion there. And while other emerging markets take steps to stabilize their currencies, I don't see any of this negatively affecting world GDP. And once the US and Turkey come to an agreement over the American pastor, the emerging market crisis will likely be over just as quickly as it started.
Regarding trade talks, they continue separately with the EU, Mexico (and eventually Canada), Japan, and China. But the market is waiting to hear something concrete before celebrating anything. I believe once we can get some details about how mounting tariffs will be rolled back in favor of freer markets, stocks will soar. I think they have been artificially held back due to the tariff uncertainty. And once this cloud is lifted, stocks will really take off.
That doesn't mean we won't see more gains in the meantime because I feel strongly we will. But the moment it looks a like a resolution is near, a big breakout should ensue.
All of the other pieces are in place for a second half surge: strengthening economy, historic employment, surging corporate sales and earnings, and record consumer sentiment. This alone is enough to push stocks to new all-time highs. The last piece is removing the cloud of uncertainty around tariffs. And that will come soon enough.
But as I've said before, treat every dip as a buying opportunity as well as every rally. Tariff tensions notwithstanding, this bull market is history in the making and is poised to become the longest bull market ever.
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Best,
Kevin Matras
Executive Vice President, Zacks Investment Research
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