In my early 30s, when I was an ambitious staffer in Congress, I learned an important lesson about politicians. Don’t listen to what they say. Watch what they do.

Case in point: Official rhetoric this week is lauding the phase one trade deal between the U.S. and China as a “monster” breakthrough. I’ve scrutinized the agreement. It does little. This monster is a mouse.

As part of a U.S.-China trade deal, expected to be signed in Washington today, China pledges to buy $200 billion of U.S. goods over a two-year period, in return for a lowering of U.S. import tariffs.

However, it’s finally dawning on Wall Street that this deal is a public relations stunt. China is merely agreeing to buy from America the agricultural goods (e.g., soybeans) that it was buying before the trade war started.

In return, China retains the privilege of selling the U.S. sophisticated manufactured products. What’s more, several existing tariffs on Chinese imports are set to stay in place until after the U.S. elections in November.

Earnings take center stage…

Tariffs hurt corporate earnings. Period.

Wall Street is closely watching fourth-quarter corporate operating results, to see if several headwinds, including the global trade war, the Brexit mess, and China’s slowing growth, will significantly hurt earnings and by extension the stock market. It’s still early, but so far, the Q4 earnings season has been a good news/bad news scenario.

Fresh doubts about the trade deal and earnings helped drive stocks to a mixed close on Tuesday. The Dow Jones Industrial Average gained 0.11%, the S&P 500 lost 0.15%, and the NASDAQ fell 0.24%. In pre-market futures trading this morning, all three indices were poised to open in the red.

This time around, an interest rate cut won’t bail us out.

The U.S. Bureau of Labor Statistics reported Tuesday that the consumer price index (CPI) rose 0.2% last month (see chart).

Consumer inflation for all of 2019 reached 2.3%, the highest level since 2011. Inflation still remains low by historical standards, but December’s uptick probably solidifies the Federal Reserve’s intention to stand pat on interest rates this year.

All’s not well at Wells Fargo…

Financial institutions typically are among the first to report earnings and to date, the news is mixed. Scandal-plagued Wells Fargo (NYSE: WFC) delivered dreary results that were hampered by legal costs. The money center bank posted a whopping operating loss of $1.9 billion and badly missed earnings estimates.

However, Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) posted robust results that bode well for the financial sector as well as the broader economy. Both mega-banks topped earnings estimates.

During the last several quarters, when Wall Street was worried about trade tensions and signs of slowing economic growth, strong corporate earnings would often ride to the rescue, like the cavalry in the final reel of an old-fashioned Western movie.

You can no longer count on the cavalry to lift stocks. It probably won’t show up for this earnings season. It’s not in the script.

According to the research firm FactSet, the estimated year-over-year earnings decline for Q4 2019 is -2.0%.

Read This Story: Earnings Season: Off and Running

If -2.0% turns out to be the actual decline for the quarter, it will represent the first time the index has reported four straight quarters of year-over-year declines in earnings since Q3 2015 through Q2 2016. Say hello to the earnings recession.

But there’s some good news. For the first half of 2020, analysts expect earnings growth of between 4.5% and 6.5%.

A lot hinges on the trade war…and don’t think the phase one deal is a truce. It’s not.

An increasing number of bellwether manufacturing and industrial companies are warning that tariffs are dampening demand and raising costs, putting pressure on margins. The trade war is a key factor in the overall negative projection for Q4 2019 earnings.

The harmful effects of protectionism extend beyond the cost of tariffs. What’s under-reported in the media is how the weaponizing of trade policy is leaving scars on international relations and business confidence. Even if the phase one trade deal had substance (and it doesn’t), the psychological damage of tariffs will resonate throughout the rest of 2020…and probably beyond.

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John Persinos is the managing editor of Investing Daily. You can reach him at: mailbag@investingdaily.com