This is a Guest Post by AK of Fallible

AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.

We haven’t talked much about the budding “trade war” between the US and, well, pretty much everybody else…

There’s a simple reason for this, it hasn’t been a primary driver of price action of the S&P (SPY) and it’s unlikely to become one in the next few months. Despite all the hoopla and hysteria of the financial journos who lazily apply the frightening “trade war” narrative to explain market moves they don’t understand, it’s still the rate of change in interest rates, inflation, a slowing China + a strong US, combined with a resetting of sentiment that is driving price action.

But… this trade war could eventually become something that impacts markets. Our thinking with these political developments is that they tend to be slow burning. Meaning, when the narrative first develops the media and talking heads make a big deal out of something that hasn’t truly materialized in any meaningful way — the hype far outweighs the substantive impact.

Then time passes… the narrative grows stale and the initial excitement fades away as predictions of immediate doom and gloom fail to transpier. The media cycle turns — the media and consumers of it have short attention spans and need new stories to spark their dopamine responses — and focuses on another scary thing while the original narrative continues to develop, just now without much attention.

It is only then that these developments usually become meaningful to markets. They take so long to develop that when they do, hardly anybody is paying much attention. As a result, the market fails to discount for them because it’s focused on something else. The development comes as a surprise and surprises mean volatile repricings.

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***All content, opinions, and commentary by Fallible is intended for general information and educational purposes only, NOT INVESTMENT ADVICE.