Trump Tariffs Overshadowed by Market Strength
Amidst the ongoing debate over President Donald Trump's tariff plans, the stock market has exhibited resilience, signaling continued optimism among equity strategists.
Despite market volatility triggered by trade war fears, the S&P 500 (SPY) has climbed approximately 0.3% since last Monday's AI-driven sell-off. Even during sharp downturns, the index experienced a decline of less than 1% on Friday and Monday, when tariff speculation was rampant.
DataTrek co-founder Nicholas Colas notes that the index's average daily movement has historically fallen within a range of 1.1% in either direction, indicating that recent market losses have been within normal parameters. Volatility, as measured by the CBOE Volatility Index (VIX), has risen at times but has remained below 19.5, a key level that signals a significant increase in market volatility.
"Investors are largely disregarding worrisome trade war headlines," writes Colas. "Trump's use of tariffs as a policy tool is not a surprise."
Strong earnings growth continues to be a major driver of market optimism. The S&P 500 is projected to report year-over-year earnings growth of 13.2% for the fourth quarter, marking its fastest growth rate in three years. Analysts remain confident in future earnings growth, with Deutsche Bank expecting an acceleration this year despite market noise.
Economic data also points to market strength. While job openings declined in December, the ratio of job openings to unemployed workers remains stable, indicating a healthy labor market. Additionally, the Institute for Supply Management's manufacturing PMI showed an expansion in the sector for the first time in over two years.
"The data supports a constructive outlook on markets," says Fundstrat's Tom Lee. "Manufacturing activity is typically correlated with higher S&P 500 earnings per share."
Despite the ongoing tariff debate, the stock market has demonstrated resilience and continues to attract investor interest based on strong earnings growth and positive economic data.