"Industrial stocks led the market lower after manufacturing CEOs met with President Trump to plot the revival of the U.S. factory sector."
Not a likely headline, nor maybe a fair one. But it's clear that traders dealing with this protracted trading range - beset by excessive amounts of policy hope, fear and speculation – see no investor-friendly magic in an industrial policy centered on producing more goods on US soil.
Here's what I'm watching heading into the closing bell:
-Ours is not an economy based on making stuff, for the most part. And one reason corporate profits and stock prices have outpaced economic growth is that the big-cap indexes are built around sturdier services businesses. Getting companies to trumpet domestic production or do a bit more of it at the margin could only be good for employment and perhaps public confidence. But hard to see how it could move the needle on growth – certainly not in a way that involves broadly applied punitive tariffs. (Narrowly targeted tariffs on companies that demonstrably move production overseas for the purpose of selling back into the US market would be acceptable probably because it's not happening that much; this all played out over the past 30 years.)
-Whether because the markets are assuming a slower path to business-friendly policy moves or what, the pullback in Treasury yields has continued today. As discussed in this week's CNBC PRO column, yields need to resume their rise for the cyclical/financial/reflation trade to lift the indexes again. It could still be an interim rally in Treasuries due to crowded positioning for higher rates, but definitely giving pause to the economic acceleration thesis.
-The typical Wall Street policy wish list is something like this: "Corporate and individual tax-rate cuts, repatriation of cash and code simplification; aggressive deregulation; tough talk on trade and bragging over repatriated jobs, but not much more – and certainly no complex border tax or change in deductibility of interest. No unnecessary antagonizing of trading partners or military allies." To the extent we can make educated guesses, this doesn't seem the exact order of priorities at the White House.
-All this being said, I don't think we need to grasp for policy reasons to explain either the market's drawn-out sideways consolidation or today's modest decline. We remain in the range, stuck between an expected growth rebound and already-generous valuations. Flows into riskier assets has ebbed, and momentum has waned. Seasonal backdrop turns a bit more negative come February, and things never move as quickly as traders hope. Any deeper pullback, if it comes, would probably be contained to the 3-7 percent range, barring a spike in capital-markets stress or serious crisis around the new administration. Global market trends seem positive. Credit markets have softened ever so slightly, but from extremely strong levels. The VIX is up small, merely reflecting the calm tape and not offering much help on the timing of the next meaty move.