The market has been on a wild ride.  The S&P 500 plunged 19 percent after President Trump set tariff levels far higher than was ever mentioned during his campaign.  By April nearly everyone was bearish, but the market seldom accommodates the majority so it rallied.

After the April 8 low stocks rallied 17 percent as Trump began a trade-war retreat.  A 90-day tariff reprieve on everyone except China was set.  Exemptions were given to Apple and other tech companies. 

The U.S. and the United Kingdom struck the first trade deal.  Then on Monday the total tariff on Chinese goods was temporarily dropped from 145 percent to 30 percent.  This is how Trump works.  Begin with something outrageous and then negotiate from there. 

Keep in mind that the trade deals are not finalized.  Formal papers covering the details aren’t signed and some countries may require actions by parliaments.  Normally our congress would approve or disapprove trade deals.  But these aren’t normal times. 

For the market, the details of the trade agreements matter less than the direction of tariffs.  A 10 percent tariff is better than a 30 percent tariff.  As I wrote in my last article, the market responds to whether things are getting better or worse, at least over the short term.

As for the bigger picture, there are potential negatives, including the impact of tariffs on GDP growth, but also positives.  If trade deals occur, earnings would rise and stock multiples could expand.  Investors believe that the “Trump put” is back on.  In other words, when things get really bad then Trump will back down.  He performed a similar U-turn after threatening to fire the Fed Chair Jay Powell.

Still, suppose investors look at today’s valuations and the unknowns and take a vacation, preferring the safety of cash equivalents earning four percent, which is hardly dead money.  A tariff of 10 percent is now the best-case scenario, but that is higher than the two percent average tariff that the U.S. had before the trade war. 

With higher tariffs it’s harder to make a case for the S&P 500 to move to and beyond its previous high.  But the market will depend as always on interest rates and earnings and Corporate America has a long record of success.  I’ll take that. 

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at http://www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.