Last night, President Trump posted on social media that he will slap a 25% tariff on all products coming from Mexico and Canada his first day in office. The tariff will remain in effect until fentanyl, other drugs, and illegal immigrants stop pouring over the northern and southern borders, he said. Similarly, Trump said China will face an additional 10% above any existing tariffs until it stems the flow of illegal drugs into the US.
Today, the S&P 500 rose to 6021.63, a new record high. Outside of some weakening in the Mexican peso and the Canadian dollar against the US dollar, markets were unperturbed by Trump's tweet. Perhaps that's because markets have seen this before. Similar negotiations took place before the USMCA trade deal replaced NAFTA in Trump's first term. We continue to recommend a bullish dollar stance regardless of tariff plans (chart).
A more immediate risk to the stock market rally than tariffs is that investors are getting too bullish. If there's one thing Americans seem to agree on, it is that stocks are going up (chart). Expectations for stock prices to be higher in 12 months hit a new all-time high in November's Consumer Confidence Index (CCI) survey. From a contrarian perspective, this suggests that a pullback is likely.
Here's more on today's indicators and developments:
(1) Consumer confidence. November's CCI survey also showed upticks in the jobs plentiful and jobs available responses (chart). There was a downtick in the jobs hard to get response. This is all consistent with our upbeat assessment of the labor market.
