Goldilocks vs. the Tweeter in Chief


You didn’t really expect that to last, did you?

Stocks tanked on Monday after China imposed tariffs on 128 U.S. products in response to President Trump’s slapping tariffs on products China exports to the U.S. But they mounted a three-day rally as “wise” market sages dismissed it as just posturing ahead of negotiations that would certainly result in something much milder.

Larry Kudlow, the new head of the president’s National Economic Council, tried to reassure everyone by saying, “This is not a trade war.” That was good enough for big investors who think Kudlow is one of them and want to believe he has some sway over the president.

But on Friday President Trump indicated he might put tariffs on an additional $100 billion in imports from China. A spokesman for China’s Commerce Ministry said China “will not hesitate to immediately make a fierce counter-strike.”

So much for the rally—and the non-trade war. By mid-afternoon Friday the Dow Jones Industrial Average had lost more than 600 points and it and the Standard & Poor’s 500 were near Monday’s lows, which marked their post-correction bottom.

It was a shame, because the March jobs report, released Friday, painted a very rosy picture for investors.

True, employment growth last month was way below February’s lights-out 300,000 plus number. In fact payrolls grew by only 103,000, far short of even economists’ consensus estimate that the U.S. economy would add 175,000 jobs in March.

But there were three pieces of good news. First, job growth averaged 202,000 over the last three months, a solid trend slightly above that of 2016 and 2017. Second, unemployment remained at a rock-bottom 4.1%.

And the all-important increase in average hourly earnings was only 0.3% for the month and 2.7% on a yearly basis.   That’s still comfortably below the 3% growth at which the rate setters at the Federal Reserve start worrying about inflation, which suggests continued gradual rate increases in 2018.

In short, the Goldilocks economy—not too hot, not too cold—is alive and well. This is supposedly just what investors want, especially at this stage of a bull market and economic recovery, when labor markets tighten and wages usually rise. But even as hundreds of thousands of jobs go begging, wage inflation is nowhere to be seen.

Trump’s unpredictability—of which the non-trade war is Exhibit A—threatens to undo all that. Last year, investors bid stocks up and up because they counted on all the “goodies” of corporate tax cuts and deregulation and were in denial about the down side. Now, they realize it’s time to pay the piper, and that’s why markets are much more volatile.