Trade War Hype Fading

It was a bunch of hype, and blown way out of proportion.  $34B in tariffs, which is likely to be backtracked or put in a deal to get favors from China.  If you think Trump is going to shoot himself in the head and tank these markets with these tariffs, you have forgotten the past 18 months, where his report card has been the stock market. 

The stock market will have to fall on its own weight, not some self inflicted policy error.  Although the Fed tightening too much could be considered a policy error, its only an error if you think popping a bubble before it gets even bigger is worse for long term growth than letting the bubble get as big as possible before it implodes on itself. 

The SPX is now back towards the recent highs before the whole trade war fear mongering dominated the headlines.  I expect the market to try to break 2800 and squeeze some shorts this week, before topping out around 2800-2820.  And then it should go back down towards 2700.  I haven't put on any shorts yet, but I am waiting for a few more days to pass before going in.  Any sales around 2800 should be profitable by August. 

In bonds, there isn't anything interesting going on.  The volatility has gotten even lower, and 10 year yields look like they have topped out and are consolidating the big move earlier this year.  Since I am leaning bearish on stocks, I am leaning bullish on bonds.  But unlike past risk parity friendly markets, this time, I have a hard time seeing bonds going up much at the same time stocks are going up.  So it is a harder market to be profitable in when bonds need to rely on equity weakness to find strength.  One big positive is the flattening trend has continued and long term, that is bullish for Treasuries, all across the curve, not just the long end.