It's been a tough week for traders.
Volume was light Wednesday, as it was the day before, with stocks meandering around in a fairly narrow range.
The really did not break out until later in the day, when White House press secretary Sarah Sanders said Canada and Mexico might be exempt from the Trump metals tariffs. The president is expected to make a formal announcement Thursday.
The market is having a tough time because it is having to ponder lots of issues outside of the usual expertise of traders. Among the questions traders are asking themselves: Who will replace Gary Cohn as top economic advisor to the president? How does China play out? How does NAFTA play out?
With so much event risk, bids and offers have evaporated. This is not something your average portfolio manager has an edge figuring out. Traders want to focus on earnings and global growth, which are quantifiable.
But in this environment, you have to become a trade expert. The most important people now are trade policy wonks that no one has listened to for ages.
The tariff story is a big problem for the stock market because it upsets the main narrative: The global economy is expanding, and earnings are at record highs. A trade war will reduce growth and endanger that whole story.
Goldman Sachs' Jan Hatzius noted on Wednesday that simulations produced by the firm estimate that GDP could drop by 0.6 percent for every 10 percentage point increase in the average U.S. tariff under retaliation.
That would be a considerable hit to growth.
So, it's easy to see why some are already saying we may be at peak earnings growth. Earnings are expected to increase 18.2 percent this quarter, according to Thomson Reuters. The reason the markets have held up so well is that earnings are expected to remain strong and even strengthen going into the third quarter, with expected gains of 19.5 percent in the second quarter and 21.8 percent in the third quarter, closing at 18 percent in the fourth quarter.
But a significant trade war would certainly cause those figures to tumble, and that is why the market is so concerned.