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The “Dow vigilantes” are back.
At least, that’s what some say is the force behind the sudden truce in Donald Trump’s trade war with China and Jerome Powell’s dovish turn.
It’s not hard to see why.
Since October, roughly $2.5 trillion has been lopped off the US stock market as investors questioned the wisdom of the rising trade tensions between the US and China as well as the Federal Reserve’s intention to keep raising interest rates until it slows the economy.
The Dow Jones Industrial Average, long the yardstick of Trump’s own success, tumbled while the broader SP 500 Index fell into a correction.
But in rapid succession in the past week, both Trump and Powell changed tack as the markets “demanded” a deal, according to Greg Valliere, chief global strategist at Horizon Investments.
“The Dow vigilantes have managed to get both a Powell put and a Trump put for the market,” said Ed Yardeni, lead strategist at his namesake research firm.
“Jerome Powell turned into Santa Claus last Wednesday, markets certainly reacted joyously to his hints that Fed tightening would occur at an even more gradual pace.
So if Jerome Powell is Santa Claus, then the two elves are President Trump and President Xi.”
It’s not the first time Yardeni has invoked an equity-market version of the phrase he coined in 1983 in reference to bond traders who signaled disapproval of monetary or fiscal policies by dumping debt.
The strategist said in March that Dow vigilantes pouring out of stocks were signaling their disapproval of tariffs on steel and aluminum as Trump ratcheted up his trade war with China.
