The markets were modestly weak all morning on Friday, but took another leg down midday. Federal Reserve Chair Jay Powell gave a speech in Chicago, but there was little new information or commentary. It was Treasury Secretary Steven Mnuchin's interview on CNBC that got traders talking.
Traders are eager to change the conversation from trade wars and tariffs to the economy and earnings, but it's hard to do when President Donald Trump keeps upping the ante with China, as he did Thursday night, when he said he was exploring an additional $100 billion in tariffs.
Traders have been trying to convince themselves that Trump's belligerent tone is a negotiating tactic and that ultimately any damage from trade wars will be modest. But the president seems to be doubling down and less concerned about markets.
Mnuchin appeared on CNBC around midday Friday and acknowledged there was a potential for a trade war, though it was not the intended outcome.
Regardless, the markets drooped after that interview, with the S&P 500 dropping more than 30 points in short order. Traders have been eager to give Trump the benefit of the doubt, but that is fading now. The stakes are going up, and there is a rising possibility of real impact to the GDP and the economy.
There is considerable collateral damage, with industrial and material stocks down notably. Traders are now regularly complaining that there is no visibility and the market is becoming uninvestible.
What comes next? Thankfully, earnings will start next week, and they will be outstanding, with expectations for the best overall earnings growth in seven years — about 18 percent for the S&P 500.
Past that, traders can only hope that negotiations with China start sooner rather than later. Some are openly hoping that the President's trade representatives could talk a lot less, since conflicting voices are clearly causing confusion.
On Wednesday, National Economic Council Director Larry Kudlow said that the president was a free trade guy and implied this was all a negotiation. The Dow Jones industrial average rallied more than 700 points.
On Friday, Mnuchin came on CNBC and acknowledged the potential for a trade war. The Dow dropped 700 points before ending off of those lows, down 572 points.
Little wonder that traders' heads are spinning.