The market remains extremely optimistic that the dispute with Mexico over immigration and tariffs will be resolved quickly. There was a brief selloff last night when it was announced that no deal was made, which illustrated that many expected a resolution after just a couple of hours of negotiations.
Optimism has returned Thursday morning and the indices are gapping higher for the third day in a row. Mexico wasn't even an issue a week ago, but now the indices are set to exceed where they were when the news first hit. That doesn't seem very logical, but there is fear of being on the wrong side of a positive announcement.
President Trump talked about more tariffs on China, but made some positive comments about progress on negotiations. It is unlikely that anything is going to happen there soon, but it seems to be priced in at the moment and is not causing a rush of additional selling.
The third issue the market is contemplating right now is the poor jobs news from ADP yesterday and how that may push the Fed to cut interest rates. It is now widely anticipated that the Fed is going to cut rates at least once this year and expectations for three cuts are building.
Weekly unemployment claims will be posted this morning, and then tomorrow the monthly numbers will be of particular importance. While the market loves to love a dovish Fed, there is a limit to how much it is going to celebrate poor numbers. Rate cuts are already expected and more poor economic news is not going to be a positive. The dovish Fed is offsetting the damage done by trade right now, but if market players start to question how much the Fed can do to hold up this market, it is going to cause some difficulty.
Oil is holding steady Thursday morning, but it has been crushed over the past two weeks and is lending support to the argument that there is a dramatic slowdown in economic activity. Some of the weakness is due to a glut in supply, but there is no question that demand is falling too -- and that is not a healthy leading indicator.
Technically, the indices have had a very healthy bounce for going on three days now, but it has done little to shift the bigger trend. The indices topped out a little over a month ago and have been stuck in a downtrend. This recent strength is still just a counter-trend move, although it is raising hope that the indices may regain their footing.
One of the biggest obstacles to a healthier market right now is the lack of leadership. The FAANG names have been lost to the antitrust issue, and other recent leadership groups such as software have fallen off. The market needs some new champions to help shore up sentiment.
Market players will be waiting for news headlines today on Mexico, which may prevent aggressive selling, but will make it hard to build new positions. If a deal does not come quickly, tariffs will start on Monday and there will not be as much pressure for a fast deal.
I'll be looking for some quick trades, but the big picture remains very murky and that will make it difficult to build positions.