Stock Market Resilience Amid Tariff Concerns
Despite the recent focus on President Donald Trump's tariff plans, the stock market has exhibited signs of strength. Since Monday's AI-driven sell-off, the S&P 500 (^GSPC) has experienced a modest 0.3% gain.
Analysts note that the index's daily average move over the past decade has been approximately 1.1%, indicating that recent declines have been within the historical norm. Additionally, the CBOE Volatility Index (^VIX) has remained below 19.5, suggesting that market volatility has not reached concerning levels.
DataTrek co-founder Nicholas Colas observes that investors have largely disregarded the noise surrounding trade war concerns. He attributes this to President Trump's previous use of tariffs as a policy tool and emphasizes that his current actions are not unexpected.
Strong earnings growth remains a key factor driving Wall Street's bullish outlook. As of Friday, the S&P 500 is on track for 13.2% year-over-year earnings growth in the fourth quarter, exceeding the 11.8% consensus estimate. Furthermore, earnings estimates have only been trimmed by 0.6% this quarter, despite the market gyrations.
Positive economic data has also been released. Although December's Job Openings and Labor Turnover Survey (JOLTS) indicated a decline in job openings, the ratio of job openings to unemployed workers remained stable. This suggests a cooling labor market but not a significant deterioration.
The Institute for Supply Management's manufacturing PMI showed an expansion in January for the first time in over two years. Such activity typically coincides with increased S&P 500 earnings.
Fundstrat head of Research Tom Lee emphasizes that the data supports a constructive market outlook. He points out that manufacturing activity and earnings per share are often correlated.
Despite the ongoing tariff discussions, the stock market's resilience and supportive economic data provide reasons for optimism.