Ways2Capital Reviews : US Stock Traders Remain Calm, Despite Trump's Trade Threats

Going by the reaction in China, you would’ve thought global markets were in for a thrashing after President Donald Trump’s latest belligerence on trade. And while a few cracks widened, in the end it was another muffled reaction in US stocks.

For the S&P 500 Index, declines that swelled past 1.5% in overnight futures trading shrunk to one-third of that by session’s end. The technology-heavy Nasdaq Composite Index was down just 0.3%. Only the Dow Jones Industrial Average suffered notable damage, falling 1.2% due to losses in high-priced stocks Caterpillar Inc. and Boeing Co.

The question of why American equities keep skating past a worsening trade conflagration has been baffling for strategists. One simple explanation is positioning. For all the drama landing at their doorstep, US investors won’t stop plowing money into bullish trades.

It’s visible in manager surveys, which last week showed equity funds only a trifle less long than at the height of January’s euphoria. It’s in markets for call options, where individual investors are engaged in a buying binge of historic dimensions. It’s in tech IPOs, stocks favored by short sellers, and ones with shaky balance sheets, all of which recently surged.

For traders so inclined, each trauma is just another test, even as their frequency quickens. In Tuesday’s version, the Dow Jones Industrial Average fell for a sixth day, the longest streak since March 2017, but the Russell 2000 Index reached an all-time high and the FANG block of tech giants rose to another record.

Contrast that with the situation in China, where benchmarks plummeted almost 5% and one in four stocks fell the maximum 10% on Tuesday amid concerns that a trade war will act as a brake on the economy. US stocks have beaten the rest of the world this year, as tax cuts boosted earnings, making the country a haven at a time when turbulence erupted from emerging markets to Europe.

While the rush to bet on higher share prices has helped the market stay buoyant this month amid an interest-rate increase from the Federal Reserve and growing trade tensions, it also sets up bulls for pain should things quickly reverse in coming months.

Source: Bloomberg
 
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