It was revealed that President Trump was under significant pressure leading up to yesterday’s tariff reversals. A weakening bond market, along with fears of leading the country into a “depression,” was what prompted the seemingly impulsive walk-back on the majority of tariffs.
Much of the thesis and thoughts I laid out yesterday continue to be validated:
The lack of downward movement in the 10-year Treasury yield was a major force in decision-making. Kevin Hassett (Director of the U.S. National Economic Council) revealed that the “collapsing bond market contributed to Trump’s decision to walk back his trade policy.”
Short covering pumped the markets higher than normal. A whopping 30 billion shares traded on U.S. exchanges yesterday, marking the heaviest volume day on record according to data going back 18 years (Source: CNBC).
Is the damage too late to reverse? Likely.
I am now in the camp that we are likely to re-test the lows in the near term based on the following major catalysts:
The yield on the 10-year Treasury remains elevated and will likely stay that way as uncertainty persists. Also, major countries like China and Japan are rumored to be selling off U.S. Treasuries as part of potential retaliation measures.
Tensions between the U.S. and China are dangerously high and could result in a worse situation than before. This could be exacerbated further given the scale of trade between the two nations.
At this elevated level, major stock indices (e.g., S&P 500) are likely not pricing in a recession, as the average P/E ratio is still higher than what you'd expect in a recessionary climate.
The S&P 500 and NASDAQ are both about to flash the dreaded “death cross” (see my post from yesterday for additional context).
The NASDAQ has officially flashed it as of today, and the S&P500 will soon follow.
The last times the S&P500 and NASDAQ flashed the death cross, it resulted in the following declines:
S&P500 (2022): 37% over 7 months
S&P500 (2018): 18% in less than 1 month
NASDAQ (2022): 40% over 8 months
NASDAQ (2018): 20.8% in less than 1 month
How do we play this?
Check out my post from a few days ago for key downside levels to watch. This market has moved much faster than many—including myself—anticipated. I encourage everyone to continue sprinkling money into the market on big red days (i.e., when the market is down more than 0.25–0.3%, which is my personal threshold). I’ll continue to share more relevant and timely thoughts on my TikTok Livestreams.
Speaking of which—I have a TikTok Livestream tomorrow at 9 AM EST. You can sign up for it here. I’ll be giving away free access codes to Signals as well as paid subscriber memberships for my Substack. So make sure to come by and say hi—I’ll also be celebrating hitting the 200K follower milestone on TikTok. :)
All my best,
Derrick
Share this post