Stock Market Whipsaw: Trust Kudlow, Not Unnamed Sources

The major U.S. equity indexes posted volatile two-sided trades on Friday as investors reacted to an optimistic report from Bloomberg over a possible trade deal between the United States and China and pessimistic response from his chief economic advisor Larry Kudlow. Sandwiched in between was a stellar U.S. Non-Farm Payrolls report that blew away the estimates with a huge jump in payrolls and the best performance in years in wage growth.

Bloomberg Report Fuels Rally

The U.S. stock market opened sharply higher in response to a strong performance in Asia after a Bloomberg report from earlier on Friday that said Trump had asked officials to prepare a draft for a U.S.-China trade deal. They based their report on four unnamed sources familiar with matter. Trump also told reporters the U.S. and China are much closer to striking a deal on trade, saying the two countries will have a good deal in place.

Kudlow Kills Rally

However, the rally stalled and the indexes turned negative after Larry Kudlow, Trump’s top economic advisor, told CNBC there is no plan in the works for China. “There’s no massive movement to deal with China,” Kudlow told CNBC’s “Halftime Report”. “We have already put out asks to China with respect to trade.”

“We’re doing a normal, routine run-through of things that we’ve already put together and normal preparation,” he said. “We’re not on the cusp of a deal.”

When asked whether the president explicitly requested his top advisors to drum up a trade deal, Kudlow said “no.” Equities fell to their lows of the day after Kudlow’s comments.

Apple Stumbles

Even before Kudlow’s comments killed the rally, the NASDAQ was beginning to teeter from its highs due to a disappointing earnings report from Apple. Shares in the tech giant fell after the company’s iPhone shipments for last quarter missed estimates. The company also offered light guidance and announced major changes to its reporting structure. These were enough to overshadow stronger-than-expected earnings and revenue.

All we can conclude is that investors live by the sword and die by the sword. Apple helped take the NASDAQ Composite up to new all-time highs, and it’s also contributing to the current correction.

Who’s to Blame for Friday’s Volatility?

Even before the U.S. session began, some investors were skeptical about the timing of the comments from President Trump regarding a possible trade deal with China. Some said Trump was trying to drive the markets higher ahead of Tuesday’s elections with his optimistic tweets.

Speculators may have bit on Trump’s positive-sounding tweets, but there was nothing wrong with him sounding optimistic about a trade deal, after all, he did talk with China’s President and he is entitled to his opinion about how the discussions went.

If anyone is to blame for the early spike to the upside, it’s Bloomberg. It broke the story that Trump had asked his administration to start drafting the terms of a possible trade deal with China. It even cited four unnamed sources familiar with the matter.

Ah, the dreaded unnamed sources are to blame. They seemed to know more about the potential deal then say Trump’s chief advisor Larry Kudlow according to Bloomberg. Why not ask Kudlow you say? Well he must’ve been too busy preparing for his interview with CNBC.