Our two greatest problems are gravity and paper work. We can lick gravity, but sometimes the paperwork is overwhelming.Wernher von Braun, in the Chicago Sun-Times
Alongside the unexpected reemergence of an old friend – the narrative of central bank omnipotence – trade and tariffs have been front-of-mind for investors since early December. It’s something we track in a recurring monthly series for our ET Professional subscribers.
In cases like the former, we think the narrative exerts a directional influence. When everybody knows that everybody knows that the Fed has a strong asset price protection mandate, then BTFD isn’t just a bit. It’s a rational response to that common knowledge. In cases like the latter, however, it is a bit more complicated. Market participants may be paying tremendous attention to tariffs and trade – and they are – but there isn’t yet a consistently directional story being told about them.
It’s an interesting mix of circumstances. No edge in trying to engage in fundamental prediction. Very little to make sense of in narrative space either. But the trade and tariffs issue still exerts significant gravity on all stories being told about markets. What’s the result?
Chaos and bullshit.
To each of those noble ends, let’s explore on a week-by-week basis just how financial media have told the story of US/China trade dispute. To do this, we explored all English language articles in the LexisNexis database about trade and tariffs from December 2 through the present. We further culled this list to include only stories that referenced ‘trade’ in the headline itself. There were 5,328 articles fitting these criteria.
What are the stories we have been telling about tariffs and trade since the negotiation window opened? How have we discussed their impact on financial markets? Well, within single weeks, financial headlines both explained how markets ‘rose on’ trade and tariffs news and how they ‘fell on’ trade and tariffs news.
Within those same weeks, markets were ‘up on’ trade news on one day, and ‘down on’ trade news the next.
If hyperbole is more your speed, you didn’t have to wait long. Markets ‘soared’ and ‘surged’ on trade news with some frequency, and ‘crashed’ and ‘plunged’ with almost equal frequency.
It should be no surprise that financial media characterized these market movements as being the result of trade news. After all, market participants apparently moved from worries to optimism on a nearly daily basis.
Or perhaps our motivations were more primal than simple worries or optimism. Perhaps markets soared and plunged on trade news because of our rising hopes and rising fears about trade and tariff resolution, which also apparently shifted on a daily basis.
We are typically of the opinion that we can rarely afford to disregard media, research and other publishers that act as missionaries, or at a minimum, repeat and propagate missionary statements. Even if we think there is little substance to the ideas being presented, the statements and narratives which surround us still exert gravity. They still matter. Likewise, we are also nearly always of the opinion that “Stocks were up on X” articles are bad, widely understood to be bad, and unlikely to exert much influence.
But the gravity of a high attention narrative like trade and tariffs presents a sore temptation. Because we know that it is important, and because we know that everyone knows that everyone knows that it is important, the temptation to pay attention to updates, leaks and explanations of markets responding to this issue is strong. The temptation to incorporate our own interpretation of what others are discounting is strong. It is a recipe designed to appeal to confirm whatever bias we have about the issue, and to convince us that we have an edge in thinking about it.
So I will be less equivocal than usual. Until an announcement is made, continue to ignore it all. Ignore the news. Ignore the probability-based scenario research pieces. Ignore the daily ‘up on’, ‘down on’, ‘hopes and fears’ grind. The gravity of the trade and tariffs narrative means that every event, every market outcome, every surge and every fall, will be drawn into the stories being told about it.
Gravity sucks. Resist it.