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The stock market can't figure out Trump's trade policy

NYSE trader: Don't get emotional about the market
NYSE trader: Don’t get emotional about the market

The Trump administration is giving Wall Street whiplash.

The stock market famously hates uncertainty, and the White House is producing a lot of it these days. Investors are struggling to understand conflicting messages on US trade policy with China and President Trump’s erratic tweets.

Related: Wall Street to Trump: No trade wars. And lay off Amazon

Market bulls and bears are waging a tug of war “directly related to the mixed policies coming out of the White House,” said Ed Yardeni, president of Yardeni Research.

Although the United States Trade Representative found that Chinese theft of intellectual property costs up US businesses up to $600 billion a year, business leaders warn that a trade war with China would stunt global economic growth, raise costs for producers and hike prices on consumers.

On Monday, the Dow gained more than 350 points. On the Sunday political talk shows, Treasury Secretary Steven Mnuchin and National Economic Council head Larry Kudlow had soothed investors’ fears about a trade war. Mnuchin said that he didn’t expect a trade war.

“It could be, but I don’t expect it at all,” he told CBS’s “Face the Nation.”

On Friday, the Dow dropped 572 points after he told CNBC that he saw the “potential for a trade war.”

Related: Dow tumbles 572 points as trade war fears pummel stocks

“The clear and present danger is a trade policy mistake,” said Art Hogan, chief market strategist for B. Riley FBR. “The market is vacillating between trying to price in the worst-case possibility to the potential for something better. That’s why we’ve seen these massive swings.”

The administration’s pace of action on China has been dizzying.

Related: Your China-US trade fight questions, answered

First the US imposed tariffs on steel and aluminum imports. Then it proposed tariffs on $50 billion worth of Chinese goods, following an investigation into Chinese theft of American trade secrets. China said it would match the move with $50 billion in tariffs of its own on US planes, cars and soybeans.

On Thursday, Trump escalated the confrontation when he said he was considering an additional $100 billion in tariffs.

All this has happened in the last six weeks.

Related: Trump threatens China with new $100 billion tariff plan

The administration’s unpredictable trade policy has intensified market concerns that have been brewing since January.

The Dow shot up 32% last year, and Trump was its main cheerleader. Analysts raised their corporate earnings projections because they expected corporate tax cuts, and the Dow went from 25,000 to 26,000 in only seven trading days.

Stocks raced out of the starting gate this year after the tax cuts were passed.

“We started the year being emboldened by the recent tax reform legislation, but now that has morphed into concern,” said CFRA chief investment strategist Sam Stovall.

Inflation fears and the threat of more aggressive action by the Federal Reserve to prevent the economy from getting too hot triggered a sell-off in Feburary. Then came worries about new regulation on big tech companies.

Now Trump’s fight with China is the market’s main concern. The Dow has been dipping in out of correction territory — down more than 10% from its all-time high in January. And it has lost about a third of what it gained from Inauguration Day to the record high.

“The Trump slump is the result of his tweets and his seemingly unwillingness to listen to his advisers on global trade,” Stovall said.

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