President Trump today is attending the World Economic Forum in Davos, Switzerland. He’s delivering his “America First” message. He said he wants a stronger U.S. dollar. Investors weren’t a receptive audience.

The main indices started strong on Thursday morning but ended the session mixed. The Dow Jones Industrial Average was powered higher by strong earnings from blue chips. Positive economic data buoyed industrials. The S&P 500 closed slightly higher and the Nasdaq fell.

Crude tumbled. West Texas Intermediate, the U.S. benchmark, fell 35 cents to close at $65.26 per barrel. Brent North Sea crude, on which international oils are priced, fell 31 cents to close at $69.71/bbl.

As we witnessed on Wednesday, trading today was choppy. News headlines whipsawed traders.

Trump’s statements at Davos are stoking fears of trade clashes. A strong dollar means that our currency buys more of a foreign country’s goods. A policy of boosting the greenback can lead to a ruinous currency war. Earlier this week, the president slapped steep tariffs on solar panels and washing machines.

Wall Street abhors trade restrictions. If Trump’s aggressive stance toward China and other countries causes a trade war, the overvalued stock market could find the trigger it needs for a correction.

The University of Chicago recently polled economists and asked them their opinion of tariffs. The result: 100% of them said import tariffs were a bad idea. You read that correctly — the figure is 100%.

Solar panel tariffs threaten jobs in the U.S. by making solar more expensive. Paradoxically, solar stocks held their own this week. That’s because the industry initially feared that the tariffs would be worse.

Trump’s tariffs start at 30% next year and fall to 15% by the fourth year. In each of the four years, the first 2.5 gigawatts of imported solar cells will be exempted from the tariff.

On Tuesday, the Solar Energy Industries Association said that the president’s action would result in the loss of roughly 23,000 jobs in the solar industry in 2018. The association predicted lost sales and canceled projects.

In the U.S., the energy sector accounts for 1.9 million jobs. The biggest share with 26.7% is in oil and petroleum. Solar comes in at second place with 19.4%. Solar panel installation accounts for the majority of solar jobs, at 52.7%.

Solar power has spread around the world. Solar equities are popular. Protectionism could upend this investment theme.

From Davos to Dallas…

The price of oil currently tests $70 per barrel. The textbooks say this level should drive consumers to solar. That’s no longer true. Oil prices and solar energy have “de-coupled.” Solar has become a mainstream energy source. It no longer needs low oil prices to attract consumers.

The consultancy Energy Aspects predicts that crude demand in 2018 will grow by 1.7 million barrels per day. The group says Brent could exceed $100/bbl in 2019. Bullish inventory data from the International Energy Agency and Energy Information Administration support the idea of $100/bbl oil.

The perplexing aspect of energy hasn’t been price volatility. It’s been the continual change in theories to explain price movements. Everyone has a theory. Nearly everyone has been wrong.

So what’s really going on in the energy patch? And how does energy affect the broader markets?

In 2014, when the price of oil topped $100/bbl, analysts crowed that “$100 is the new $20.” Two years later, oil prices plunged below $28/bbl.

Blame was cast on the glut caused by OPEC. The cartel started a price war to grab market share. Prices plummeted.

Prices are now recovering. They’ve more than doubled in two years. Stocks have risen in tandem. In the past, when crude became more expensive, investors worried about economic damage. Equities fell. Now the opposite is happening. What gives?

Several factors are at play: the shale oil boom, better recovery rates of existing reserves, the rise of renewable energy, and the emergence of electric vehicles.

The energy recession wasn’t just the result of a glut. In 2014, demand was weakening. China’s economy was sputtering. OPEC seemed too divided to enforce production cuts.

A series of unexpected events unfolded. China revved up its economy with stimulus. Commodity prices rose. Emerging markets got off the ropes. Energy demand recovered. The fracking revolution took off. And OPEC made a deal to curb output that actually stuck.

Fast forward to 2018. Inventory is falling, demand outstrips supply, and prices are rising. Equilibrium is back.

High oil prices don’t harm financial markets the way they did in the 1970s. The world has become less reliant on oil. For stock investors these days, rising crude signals robust economies. It shows that China — the world’s growth engine — is on track. In turn, the thriving shale industry boosts U.S growth.

The psychology of energy has changed. The new watchword is abundance, not scarcity.

Which brings us full circle to Davos.

Trade restrictions could upset the energy market’s regained balance. That in turn could torpedo stocks. We’ll see how tariffs pan out. But one thing is certain: the bull market faces a new threat. It’s called protectionism.

Thursday Market Wrap 

• DJIA: +0.54% or +140.67 points to close at 26,392.79
  
• S&P 500: +0.06% or +1.71 points to close at 2,839.25
  
• Nasdaq: -0.05% or -3.89 points to close at 7,411.16
  

Thursday’s Big Gainers 

• TAL Education Group (NYSE: TAL) +17.75%

Educator’s earnings beat expectations.

• Varian Medical Systems (NYSE: VAR) +12.60%

Medical device maker impresses on earnings.

• Dolby Laboratories (NYSE: DLB) +8.99%

Audio lab upgrades guidance.

Thursday’s Big Decliners

• Horizon Global (NYSE: HZN) -29.24%
  

Vehicle equipment firm lowers 2017 guidance.

• Newell Brands (NYSE: NWL) -20.65%

Analysts sour on consumer products firm’s strategic plan.

• Laredo Petroleum (NYSE: LPI) -14.15%

Investors disappointed with energy producer’s preliminary earnings.

Letters to the Editor

That giant sucking sound…

Regarding my January 24 issue (Stocks Stumble as U.S. Attacks China on Trade), I got this email today:

“The trade agreements you mentioned were unfair. China has favored nation status forever; trade money comes back to buy real estate, companies, bonds, etc. They can stop ANY imports at any time.

NAFTA was unfair. Perot said the ‘sucking sounds of jobs going south’ will be huge. He was right. I worked at FPL at the time. We had four companies that manufactured electric meters here in the U.S.A. Three out of the four immediately moved to Mexico. GE was the only one that stayed here. Prices never went down.

Westinghouse, Duncan and Sangamo moved south and their workers lost good jobs. GE stock peaked in 2000 and is now worth less than a third of what it was then.” — Jorge F.

Thanks for your comments, Jorge. You make valid points. I argue, though, that General Electric’s (NYSE: GE) problem hasn’t been unfair trade agreements. The firm has suffered from aggressive forays into finance initiated by then-CEO Jack Welch. When the financial crisis hit in 2008, GE was overexposed.

GE is now trying to fix that strategic blunder. New CEO John Flannery is selling off financial assets to focus on the firm’s industrial roots. The real issue with GE isn’t NAFTA.

What’s your opinion of tariffs? Do they work or do they make matters worse? Express your view: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.