Markets wanted clarity. Instead, they got an on-again, off-again tariff mess. The result? A week of turmoil.
KEY TAKEAWAYS
MY HOT TAKES
Seeking help. I am not a psychologist. I do not play one on TV, though I could probably get cast as one if I work on my German accent. 🧐 That said, I will refrain from using psychological maladies to describe the schizophrenic markets these days. Uh oh, I did it anyway.
How is it that we got here? My yesterday’s blog post titled “Fear of the Unknown: Markets, Tariffs, and the Week That Felt Like a Year,” I suppose, kind of said it all. The week that felt like a year, penned at 4:15 AM on a Thursday. That’s right I called it a “week” though it was only ⅗ over. My week started with an interview with Maria Bartaromo in which she played me clips of her weekend interview with Commerce Secretary Lutnick, in which he gave lots of information on the pending tariffs that would hit on Tuesday. There was lots to unpack, but the bottom line was we both had no real clue what would actually happen a day later.
I even went as far as saying, knowing for-sure that a 25% tariff would be levied would be better than not knowing, and unsure about what would be. At least we could analyze the impacts of the tariff, but we would first have to know what it would actually look like and how long it might last. But at last, we didn’t.
My biggest fear on Monday morning was not of the pending tariff, but of waning consumer confidence. As last week drew to a close, we got a clue that confidence may be slipping in Friday’s decline in Personal Spending. That is an unarguably negative input to the model.
How would consumers be losing confidence? The markets just rallied in the wake of President Trump’s White House win. His administration was supposed to usher in a time of great growth for the economy and the stock market. All his campaign policies were pro-growth. We knew he would use tariffs, but looking back on his last presidency, we felt like we understood his strategy. Besides, a big part of his White House bid strategy called out his predecessor’s poor handling of inflation. Surely, he would not want to re-ignite inflation.
Monday morning, I was sure that the market had already factored in those already well-telegraphed tariffs on Mexico and Canada, but maybe not so much the proposed additional 10% levy on China which appeared over the weekend. If you see the picture I posted of my interview on LinkedIn, you will see that futures were pointing to a positive open, probably in response to Lutnick’s weekend comments. Well, that would all change pretty quickly and the market proved me wrong. The S&P would close out the day deep in the red as the President threw cold water on any hopes of a reprieve on Tuesday.
Tuesday, T-Day as I like to call it, saw selling that pushed the S&P to its bare bones support level. It didn’t look good. Both Canada and China struck back with their own tariffs. Equities attempted to claw their way back from earlier losses but lost much of the gains in the last minutes of trade.
Wednesday did not look good as the session began. Traders were wondering how long the pain would last. This had the makings of a trade war, but bigger than the one from 2018, and the President seemed resolute in his pursuits. Until… a lifeline. The President announced that he would exempt cars from the list of tariffed items. The good news, if you could call it that, spurred a late-day rally, and stocks closed in the green. We were back from the brink! The so-called “Trump Put” was real. His reversal of the auto tariffs gave traders hope that the President wanted to keep markets from slipping further.
Side note: in the middle of all this, we had a mixed bag of earnings releases, a big miss on ADP’s monthly employment number, and a typically sleepy Beige Book that mentioned “unknowns” rather…er, frequently. Those in and of themselves were enough to keep markets on edge. Ok, back to the action.
A Wednesday after the close earnings report drew significant selling overnight. The company in question was a semiconductor company, so the selling had a painful impact on the markets which opened well in the red yesterday morning. Lest we forget, there was a Trump Put. Or was there? There was! The President came out later in the day and announced that all tariffs on items governed by the USMCA trade agreement would be delayed for a month.
“Aha, there it was, the Trump Put,” thought traders… for about a minute. The temporary reprieve covers roughly ~40% of Canadian, and ~50% of Mexican imports. But still, it was another sign that the President was using his tried-and-true strategies of on-again off-again tariffs to give him the upper hand in negotiations. This off-again situation would surely cause a rally.
But alas, the opposite occurred, and the selling intensified. Treasury Secretary Scott Bessent ‘splained us in a NY Economic Club speech that tariffs only cause transitory inflation. Markets responded with… a chuckle. Even Secretary Lutnick couldn’t quell the market's ire.
By the close, it was official. Markets closed painfully in the red, even after the President backtracked some of the tariffs. It was official. The markets had contracted Customs Chaos Disorder. The symptoms: fear of the unknown eroding market confidence, frequent temper tantrums (marked by sharp selloffs) expressing anger in politicians, a low-grade, persistent fever causing constant discomfort, and sometimes trade-paralysis. Though few deaths have been reported, lasting systems have been known to cause tepid market returns with high volatility. That’s my diagnosis, anyway.
YESTERDAY’S MARKETS
Stocks closed deeply in the red after painful selling. President Trump’s temporary relief for USMCA-covered items was not enough to stop the selling. The VIX index rose reflecting the growing volatility related to trade uncertainty. Bitcoin closed below 90,000 despite continued vocal support for a crypto reserve.
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