Trade Tensions Rocked The Market On Friday, Overshadowing Bullish Comments By The Fed's Jerome Powell

Plus New Zacks Strong Buys for Monday, August 26 Trade Tensions Rocked The Market On Friday, Overshadowing Bullish Comments By The Fed's Jerome Powell Stocks plunged on Friday, erasing the gains from earlier in the week, to end lower for the third week in a row. Things were looking good earlier in the day, in spite of China saying they will impose additional tariffs of 5%-10% on $75 billion of U.S. goods on September 1st, and resume tariffs on U.S. imports of automobiles (25%) and parts (5%) on December 15th. Those are the same two dates that the recently announced $300 billion in tariffs on China will go into effect. Nonetheless, stocks turned positive when Fed Chairman Jerome Powell, during his speech in Jackson Hole, said the U.S. economy is in a "favorable place", and that it continues to "perform well overall." He acknowledged that there were "significant risks" at the moment, and cited the tariffs on China, the slowdown abroad, the upcoming Brexit, tensions in Hong Kong, and the volatility in equity markets. Yet, once again, he reiterated the Fed's commitment to "act as appropriate to sustain the expansion." Not surprisingly, many read that as the Fed teeing up another rate cut in September. But the President wasn't too happy with the Fed or China. He castigated the Fed for moving too slowly on cutting rates. And in response to China's latest move, he tweeted that "we don't need China" and that American companies were "hereby ordered to immediately start looking for an alternative to China, including bringing your companies home." He also said he would be responding to China's retaliatory tariffs later in the afternoon. And sure enough, after the close, he said he would raise the tariffs on the existing $250 billion of Chinese goods to 30% on October 1st, and increase the tariffs from 10% to 15% on the remaining $300 billion slated to take effect on 9/1 and 12/15. The rhetoric on both sides was really ratcheted up on Friday. Whether some of that was grandstanding and posturing ahead of the next round of U.S.-China trade talks in September, only to be tamped down before the trade talks begin (similar to what happened before June's trade talks), is unknown. But it could just as well be a big-stick negotiating tactic to exert as much pressure on the other at the talks. Conspicuously, the threatened tariff dates of October and December are after the scheduled trade negotiations in September. This would give both sides enough time to use those threats as leverage, but also enough time to pull them back if progress is made at the talks. We'll find out soon enough. Interestingly, over the weekend at the G7 meeting in France, President Trump and Japan's Prime Minister Shinzo Abe, announced a billion dollar trade deal in principle. Details were short, but U.S. farmers were hailed as winners with Japan expected to buy large purchases of corn and cut tariffs on beef, pork, and other agricultural products. (The deal also included industrial products and digital trade, but no further details were given.) More work is needed to flesh out all of the details, but both leaders stressed the importance of the deal, and having it implemented as soon as possible. At the moment, the deal is expected to be finalized in mid-September when the two meet again at the United Nations General Assembly session in NY. In the meantime, I still like the market, but I would expect more volatility as we approach the increasingly important month of September. Regarding Friday's pullback, we finally closed those two gaps on the S&P chart I had been mentioning at 2,893.63 and 2,856.67. Since common gaps are usually filled before a meaningful advance can take place, the closure of those gaps was something many chartists have been eyeing before adding to positions. The S&P closed at 2,847.11, just below that no-filled price gap, and above the prior low of 2,822.12. Next area of support comes in at the 200-day moving average at 2,802.53, which is only -1.59% lower from Friday's close. But I remain bullish on stocks. Because the economy is just too strong. And the ongoing trade tensions are not enough to derail it. So if we do see more downside pressure, I'd still be a buyer of the dips. Because it looks like there's a lot more upside to go. And the start of the next leg up could be a lot closer than people think. 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