Stocks gapped up at the open, only to quickly fade. The Dow is currently down 236 points, and the SPX is down 1.1%. All eleven major market sectors are lower, led by healthcare (-1.8%) and tech (-1.4%). As some type of US-China trade deal looks more likely—see below—traders are selling the news. European markets closed mixed but Asian markets rallied overnight. China’s Shanghai Composite Index is up over 20% so far this year. The US dollar is a bit stronger today, and commodities are mixed. WTI crude oil rallied back to $56.50/barrel, pretty close to the 2019 high. In fact, most commodity prices are higher this year after suffering declines late last year. Recently, President Trump has said he believes oil prices are too high and the dollar is too strong. I’m not sure why the market is reacting to these remarks, but it does feed day-to-day volatility. Bonds are trading a bit higher as yields tick lower this morning. The 10-year Treasury yield is back down to 2.73%.

Bloomberg reports US and Chinese negotiators are “close to a trade deal that could lift most or all US tariffs…” The Chinese have made it clear that any deal would require the immediate removal of tariffs on $200bil of goods exported to the US. President Trump could do that with an executive order. In return, the Trump Administration wants some assurance that China will 1) remove some trade tariffs, 2) import more US-made goods, and 3) stop its systematic theft of intellectual property. Good luck with the last one. Once the broad outlines of a deal are reached, President Trump and Xi Jinping will schedule a summit in Florida. The Wall Street Journal says that could happen as soon as March 27th. The stock market has already priced-in a deal, so today traders are selling the news.

With the stock market having recovered most of what was lost in the growth scare of 2018, traders and investors alike saying the economy isn’t giving way to recession. The stock market over-reacted. CNBC’s Josh Brown put it like this: “Maybe we had a sentiment recession. We certainly didn’t have an economic recession.” We recently learned that the US Index of Leading Indicators held flat in January with December, and is up about 3.5% from year-ago levels. This is an important gauge of expectations for the economy over the next six months, and it isn’t falling apart. As I’ve said before, the rate of growth for the economy and corporate earnings is clearly slowing this year, but that doesn’t mean contraction. So now that stocks have snapped back and investor sentiment isn’t so dour, where do we go from here? Where is equilibrium for the market? That’s the big question for investors right now—not the Mueller investigation or trade deal or the president’s view of appropriate oil prices.

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