Manna from Heaven for Wall Street


After a rough few days, investors got some genuinely good news late this week.

On Thursday, President Trump signed an order imposing 25% tariffs on steel imports and 10% on aluminum imports, but he exempted Mexico and Canada (the biggest exporter) for now. On  Friday, Treasury Secretary Steven Mnuchin  said other exemptions may follow.

Then, in a stunning development Thursday night, South Korea’s national security advisor Chung Eoi-yong announced at the White House that North Korean leader Kim Jong-eun would suspend nuclear and missile tests and that President Trump would meet with him this spring.

Finally on Friday morning, the Labor Department announced that nonfarm payrolls grew by 313,000, way above expectations and January’s 200,000 gains. Unemployment stayed at 4.1% and average hourly earnings rose by 0.1%, or 2.6% on a yearly basis.

By mid-afternoon Friday, the Dow Jones Industrial Average had gained almost 400 points, the Nasdaq Composite index was up more than 100, and the Standard & Poor’s 500 index had advanced by nearly 40. The S&P is less than 100 points shy of its all-time high reached on January 26th.

So, which mattered most? And what does it say about stocks’ future direction?

The jobs report was first among equals.

This combination of surprisingly robust jobs growth and modest wage increases, especially after January’s surge in average hourly earnings jolted markets, is beyond Goldilocks; it’s more like Nirvana for investors.

It points to a very strong, but not overheating, economy where wage gains are tempered enough to keep new Federal Reserve Chairman Jerome Powell on Janet Yellen’s path of gradual rate increases and balance-sheet reductions.

Since interest rates are the alpha and omega of investing, that should  keep the markets on a bullish path.

The sudden exemptions of Mexico and Canada from the proposed tariffs indicate that this whole plan is as full of holes as Gruyere cheese. More and more it looks like an attempt by the president  to placate his blue-collar protectionist base in the Midwest while not tanking the markets by starting an out-and-out trade war.

The Korea move is most intriguing for the long run. I’ve argued here and in my MarketWatch column that war on the Korean peninsula, especially nuclear war, is the biggest risk to the markets—and to civilization.

A U.S. president has never met face to face with a North Korean leader. Their mercurial personalities make this a risky summit, and North Korea has snookered two U.S. administrations into making deals it never intended to keep.

But it’s a lot better than nuclear war, and there’s a chance an unconventional approach might work, so it’s definitely worth trying. If it succeeds, there will be a lot more to celebrate than higher stock prices.