Markets Take the Under on Trump’s Economic Speech

The global stock market drifted lower on Monday, posting its biggest decline in more than three weeks. Yes, there’s still plenty of time for equities to recover and gain for a sixth consecutive week, which would match their longest winning streak since they advanced for 10 consecutive weeks over the course of late 2017 and early 2018. But doing so may hinge on a critical event Tuesday.

Even with the modest decline, the MSCI All-Country World Index is still up 19% this year. The surge in recent weeks is due largely to optimism that the U.S. and China are close to reaching an agreement on “phase one” of a broad trade deal. It doesn’t matter that the details are likely to be modest; what matters is that it would signal that the trade war isn’t worsening. That’s why President Donald Trump’s address to the Economic Club of New York on Tuesday is so critical. No one is quite sure which Trump will show up. Will it be the one who in recent weeks has trumpeted progress in trade talks, or will it be the one who has said that the U.S. hasn’t agreed to a rollback of tariffs on China, which is what the markets truly want? This is no small matter for investors. Various surveys have shown that trade uncertainty is the primary risk facing markets. In that sense, whatever Trump says on Tuesday has the potential to either ratify the rally or bolster the case that it’s built on little more than hope. And as everyone in markets learns on their first day in the business, hope isn’t a strategy. “Markets have been skittish waiting for any concrete information about the trade talks,” Matt Forester, the chief investment officer at BNY Mellon’s Lockwood Advisors, told Bloomberg News. At 15 times forecast earnings for the following year, the MSCI is trading at its most expensive level since the start of 2018.