We got a tariff induced panic selloff last week, no secret at this point. At times like this, you throw charts out the window as the action is all supply and demand, meaning emotional moves galore. Over the weekend we got further crash calls everywhere you look. Jim Cramer is calling for Black Monday which is a day in 1987 that saw markets break down 22% in a single session. Could that happen? Anything can happen. Do I think that happens? Absolutely not. When everyone is talking about a black swan event, that is not when it materializes.
So what is the next move with tariffs? US Treasury Secretary Scott Bessent said over the weekend the plan is to remain firm. He also noted that over 50 countries have approached the administration about "lowering their non-tariff trade barriers, lowering their tariffs, and stopping currency manipulation." While I think markets give a major bounce this week, I don't think a bottom is in sight for at least a couple months. This is a complete trader's market, if you're looking for long term investments, I would continue to hold off.
It's easy to compare this environment to Covid where we saw markets drop ~33% in a month's time. Difference #1, which is the major negative aspect, is back then we had major government stimulus. The Fed injected liquidity amounts never seen before into the market which lead to a V-bottom and fast recovery for stocks. Jerome Powell came out Friday and basically said the Fed is holding off on rate cuts as data comes in. This tells us he's not looking to inject liquidity just yet. The 2nd major difference is the underlying issue. Covid was a complete black swan event that shut the world down. The tariff situation is a completely manufactured situation that Trump put in place. This is a major positive to me.
Right now it seems the market is pricing in these exorbitant tariff rates to stay this high through the administration. If that were the case, we would go into a deep recession and I wouldn't look for stocks to bottom until Q3, end of summer, maybe later. That is far in the future so let's take it a day at a time.
The HUGE POSITIVE to me, is how quickly we can reverse course through tariff negotiations. Right now the big players to watch are China, The European Union and obviously the United States. These are the most important tariff situations. Stocks aren't going to bottom because Cambodia is negotiating their tariffs down to 0 because Cambodia's economy is not big enough to matter in the context of global trade. We're in a news driven environment and that won't change any time soon, so get used to it.
Economic news to look out for this week is Fed minutes Wednesday at 2pm EST (minutes, not a meeting), CPI Thursday and PPI Friday, both inflationary measures. Q1 Earnings season kicks off Friday with the banks. Every company has a free pass to guide very low expectations this quarter, so expect companies to that free pass. Every company will cite tariff risk and drop off year end guidance. In most earnings seasons we're looking for gap ups that flag to buy. I have a feeling this season we will be looking for more gap down earnings that create bear flags to find shorts.
Heading into tomorrow, with the crash calls at every turn this weekend, the trader in me says it's a great setup to buy for the short term. Futures just opened up, I purposely waited to send out this newsletter for them. The QQQ's first few prints in the overnight session was down 5.4%. I will look for an intraday rinse out lower to buy for a short term rebound. We are stretched to the downside in ways that are very rare for the broad stock market to be, which I will go over later on. Stocks halt at 7% down and I would not want to be stuck with stock for that so if we do see that circuit breaker hit, all of this is null & void, and I'll just stick to the sidelines.
