Markets hit the snooze button on tariff alarms
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Illustration: Maura Losch/Axios
The TACO trade is resilient, despite the renewed double digit tariff rates that President Trump announced on Monday on several countries, including the 25% tariff on Japan and South Korea.
Why it matters: The options market is signaling what Axios said last week: Wall Street is not panicked about tariff policy.
By the numbers: Options pricing indicates an expected 0.6% move in either direction on the deadline day of July 9, according to data compiled by Stuart Kaiser, head of U.S. equity trading strategy at Citi.
- That implied move is actually below the daily average for July, according to BNP Paribas and Bloomberg data.
- The data also indicate higher implied moves off the upcoming CPI print on July 15 and the Federal Open Market Committee meeting on July 30.
- This could indicate investors are "pricing more risk that trade policy upends the economy and FOMC path" than for the tariff deadlines themselves to cause downward pressure, Kaiser wrote in his note.
Yes, but: As the tariff headlines trickled out Monday, stocks sold off to session lows before recovering slightly to still close in the red.
- Consumer discretionary was the biggest loser in the S&P 500 to kick off the week, a sector filled with retail names that could be most vulnerable to tariff shocks (but also, Tesla, which had its own headwinds Monday.)
- Any tariff impact this time around could be more country and sector specific than what we saw in April, according to the note from Kaiser.
- And to that end, Asia Pacific equities ETFs sold off following the announcement of double-digit tariffs on several nations in Asia.
What they're saying: "As long as the market can plausibly assert that there is room for negotiation or extension, then it won't freak out (cue theme song 'won't get fooled again')" wrote Steve Sosnick, chief strategist of Interactive Brokers, in a text to Axios.
- Investors will believe tariff policy when they see it in its final form.
The intrigue: That finality may be difficult to suss out.
- Trump wrote in his letter to South Korea that "tariffs may be modified, upward or downward, depending on our relationship with your country."
The bottom line: "Thanks to the relentless dip buying, the 'half-life' of dips has been drastically shrinking," according to Sosnick.
- The Wall Street trauma response in April looks like one of underreaction versus overreaction, since bad news is perceived to "just become buying opportunities anyway," he noted.
- Cue the Tuesday Tacos.
