I have been writing here for more than twelve years, and the most frequent question I get asked when I mention that to people is how I come up with a subject to write about every day. To be honest, it isn’t that hard: The financial markets offer stories of interest on a regular basis. That's not to say that there haven't been days when I struggle to decide what to write about. Usually when that happens, it's not because there is nothing to write about, but because there are too many news stories of importance, and the problem is deciding which is the most worthy of attention.
I returned today after a short break to face exactly that quandary, but there is really only one story on which investors should be focused.
The obvious subject for today’s piece, the one that will be leading the morning shows on the business channels, is the return to prominence of the meme stocks, and the crazy jump in GameStop (GME). Trading in that stock was halted several times on Monday morning as it popped by around 100% initially, then finished the day with a 74% gain.
As you might expect if you are familiar with the tactics of the trader nicknamed “Roaring Kitty,” who was the instigator of the whole meme stock phenomenon and who sparked this renewed frenzy by tweeting for the first time in three years, it wasn’t just a one day affair. GME is trading more than 150% above yesterday’s close in the premarket as I write, and who knows what the next few days will bring.
The problem with the meme stock story is that as fascinating as it is as a “David versus Goliath” tale, and as satisfying as it is for small traders to punish Wall Street short sellers, it really doesn’t matter other than to those short sellers and the few retail traders who joined in the fun yesterday.
The only lasting effect may be to erode confidence in the stock market, making it once again look more like a casino, but it will certainly have no long-term impact on the market.
That can also be said of another big news story this morning, the imposition of tariffs on China. If you have been reading for a while and have a good memory, you may remember that I was against the imposition of tariffs by the Trump administration, and I am not a partisan person, so I am still against it now, when proposed by the Biden White House.
Restricting free trade is, and always will be, a political move. It is designed to please a few key constituents, but history shows that in the long run, it is a policy that usually hurts economies rather than helps them. The big danger here is that the two Presidential candidates get into an argument about who can impose the most tariffs, and we end up completely strangling trade and/or fueling inflation regardless of who wins in November.
However, while the establishment of free trade has been the basis of economic growth over the last couple of centuries and any attack on it is dangerous, my concerns are more philosophical than practical. Individual, politically expedient tariffs distort and disrupt the market and set a precedent for the future. Neither of those things are good, but even so, tariffs are not particularly relevant to investors right now.
Of more immediate concern is the news from Walmart (WMT) that they are cutting some corporate jobs. This is not a big move, but any time the world’s largest retailer cuts back, it looks like a warning. They have their finger on the pulse of the basic American consumer more than any other company, and if they see a need to future-proof their business, it means that at the very least, growth is likely to slow.
Still, the most important news, and the thing that long-term investors should be focused on right now, is the PPI print. Producer prices rose by 0.5% in April, way above the 0.2% consensus estimate and further evidence that after success in bringing inflation down from its 9% or so highs to around 3%, progress has been stalled.
CPI will be released tomorrow, and if that follows the same trend as PPI, it could mark the start of a difficult summer for investors as speculation shifts from when the Fed will cut rates to if they will, to say nothing of talk of another hike.
As fun as the meme stock story is, as much as our political selves want to focus on a partisan take on the tariff story, and as significant as caution from Walmart is, the story this week is inflation. That has been the way for a year or so now, so as tiresome as the subject may be for those who have been following it for this long, rising prices and how the Fed deals with them is still the most important story.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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