So much to talk about this week, so let’s get right to it ..
The weekend break did nothing to calm the stock market’s shredded nerves as the Trump administration met the widespread condemnation of its tariff policy (“idiotic” was one of the kinder adjectives used) with only denial and defiance coupled with juvenile advice like “be cool” , “hang tough” and “take the medicine”. There were more gigantic losses in Asia on Monday (Chinese stocks crashed by another 10%, Hong Kong fell by 13% and Japan was down 8%) followed by further slaughter in Europe.
When it opened, Wall Street was hit by a ferocious bout of two-way volatility with stocks chaotically swinging from down 4% to up 3% and then back down again in the face of a deluge of contradictory tariff-related rumors, rogue tweets and scuttlebutt.
Trump reacted to China’s retaliatory tariffs by slapping on an additional punishment tariff of 50% on imports from that country. This, of course, is exactly how things get out of hand and stocks took another leg lower on the announcement. By the end of an exhausting session and massive trading volume, the S&P 500 was fractionally lower on the day and the NASDAQ fractionally higher.
Alarmingly however, interest rates suddenly began to turn dramatically higher, especially longer term maturities (see INTEREST RATES below), amidst signs of panic in the bigger, scarier bond market and rumors that both China and Japan were dumping some of their mammoth holdings in US Treasury bonds. This would prove crucial a couple of days later.
Asian markets bounced back on Tuesday. Clearly, traders felt that four days of carnage was enough for the moment at least and it was time to pick through the rubble looking for opportunities and the same sentiment prevailed in Europe. Wall Street did not disappoint at the open and the indexes quickly jumped higher by as much as 4%, a small rehabilitation given the enormous damage of the last couple of weeks but the bleeding was at least stopped for a while after Treasury Secretary Bessent cryptically described tariffs as being like “a melting ice cube”.
But the real melting ice cubes were those brief initial gains and by the close of a wild day, the indexes had slipped back well into the red zone again as both the US and China appeared to be digging into more deeply entrenched positions. Once again it was Big Tech and AI that got hit the hardest with the NASDAQ getting absolutely brutalized.
The global trade war intensified pre-market on Wednesday with China reacting to the launch of 104% US tariffs on its goods by the imposition of an additional retaliatory tariff and the EU joined the party, slapping its own levies on American imports.
A little before 2pm ET with the stock indexes weakening again, another earthquake hit markets as Trump blinked (see ARTICLE OF THE WEEK below) and suddenly announced a 90-day pause on the so-called reciprocal tariffs for non-retaliating countries while at the same time jacking up tariffs on China (which was not eligible for the pause because it had responded in kind) to 125%.
Wall Street was entirely caught offside and reacted by furiously buying everything that it had been frantically selling for weeks in a historic monster face-ripping rally. What traders regarded as the “good news” in Trump’s statement (the pause) completely crowded out the potentially damaging “bad news” (the ever-increasing China tariff). Analysts scrambled to pull their recession calls. The spike in interest rates came to an abrupt halt.
Within a couple of minutes of the announcement, the S&P 500 had soared by 7% and the NASDAQ had exploded by 9% and by the end of the session, these gains had risen to over 9.5% and more than 12% respectively. It was the largest intra-day swing from losses to gains in stock market history.
Wednesday’s euphoria failed to follow through to US markets on Thursday, although Asia and Europe did just fine. The pre-market release of the usually closely-scrutinized but very backward-looking Consumer Price Index (CPI) retail inflation data went virtually unnoticed (it was better than expected, falling to a 2.4% rate).
Exhilaration quickly flipped back to deep unease as focus switched from The Pause to fears that the rapid escalation of the trade war between the two biggest economies on the planet will bring severe damage to global growth, especially after the White House said US tariffs on China had been raised yet again to an unfathomable 145%. Stocks reversed sharply lower again and about a third of Wednesday’s huge gains was immediately wiped out.
Overnight on Friday, China punched back by raising its tariffs on US goods from 84% to 125%. Q1 2025 earnings season kicked off with decent numbers from some of the big banks, but this season is going to be all about forward guidance. Backward-looking reports from a quarter with no tariffs is of limited use to investors right now. We also saw a big drop in the Producer Price Index (PPI) measure of wholesale inflation, confirming the favorable CPI reading.
Stock indexes had a relatively steady day by recent standards, closing higher despite more data confirming consumer sentiment plunging to its worst levels since 1980 and soaring inflation expectations, to cap what was the best week of for stocks since November 2023, but mostly fueled by the colossal spike of just one day.
At the heart of the dramatic market decline from the February all-time highs is the fact, not resolved by The Pause, that Trump is still not telling markets what he really wants at the end of all this. Global tariff reduction? Boost Federal government income to fund tax cuts? Force the Fed to cut interest rates? Or simply a stick with which to beat nations he doesn’t like? Any of these could be true and none of them could be true.
This information vacuum is the underlying problem, so anything that clearly articulates and defines the ultimate goal of the policy is would be ever so helpful. Unfortunately there’s no sign of this yet. Tariff chaos is far from over.
I sent out a brain dump of ideas last week about how I believe you should respond to current volatile market conditions. In case you missed it, you can read it here.
If you are not yet a client of Anglia Advisors and would like to explore becoming one, please feel free to reach out to arrange a complimentary no-obligation discovery call with me.
ARTICLE(S) OF THE WEEK ..
WTF just happened??!! Why Trump blinked on Wednesday.
.. AND I QUOTE ..
“The COVID-19 bear market is a misleading guide to what comes next. The government threw everything but the kitchen sink at it to revive sentiment. This time, to use the horror-film trope, the call’s coming from inside the house.”
Spencer Jakab, The Wall Street Journal.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Technology (two biggest holdings: Apple, Microsoft) ⬆︎ 8.8% for the week
Last week’s worst performing US sector: Real Estate (Prologis, American Tower) ⬇︎ 0.1% for the week
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price rose 5.7% last week, is down 8.9% so far this year and ended the week 12.8% below its all-time record closing high (02/19/2025).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price rose 1.8% last week, is down 16.6% so far this year and ended the week 24.0% below its all-time record closing high (11/08/2021).
INTEREST RATES:
FED FUNDS * ⬌ 4.33% (unchanged)
PRIME RATE ** ⬌ 7.50% (unchanged)
3 MONTH TREASURY ⬆︎ 4.34% (4.28% a week ago)
2 YEAR TREASURY ⬆︎ 3.96% (3.68% a week ago)
5 YEAR TREASURY ⬆︎ 4.15% (3.66% a week ago)
10 YEAR TREASURY *** ⬆︎ 4.32% (4.01% a week ago)
20 YEAR TREASURY ⬆︎ 4.91% (4.44% a week ago)
30 YEAR TREASURY ⬆︎ 4.85% (4.41% a week ago)
Treasury data courtesy of ustreasuryyieldcurve.com as of the market close on Friday.
* Decided upon by the Federal Reserve. Used as a basis for interbank loans and for determining high yield savings rates.
** Used as a basis for determining many consumer loan rates such as credit cards, home equity and auto.
*** Used as a basis for determining mortgage rates.
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬇︎ 6.62%
One week ago: 6.64%, one month ago: 6.64%, one year ago: 6.88%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEDWATCH INTEREST RATE TOOL:
Where will the Fed Funds interest rate be after the next rate-setting meeting on May 7th?
Unchanged from now .. ⬆︎ 79% probability (67% a week ago)
0.25% lower than now .. ⬇︎ 21% probability (33% a week ago)
What is the most commonly-expected number of remaining 0.25% Fed interest rate cuts in 2025?
⬇︎ 3 (down by one from a week ago)
All data based on the Fed Funds interest rate (currently 4.33%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
WWW.ANGLIAADVISORS.COM | SIMON@ANGLIAADVISORS.COM | CALL OR TEXT: (646) 286 0290 | FOLLOW ANGLIA ADVISORS ON INSTAGRAM
This material represents a highly opinionated assessment of the financial market environment based on assumptions and prevailing information and data at a specific point in time and is always subject to change at any time. Although the content is believed to be correct at the time of publication, no warranty of its accuracy or completeness is given. It is never to be interpreted as an attempt to forecast any future events, nor does it offer any kind of guarantee of any future results, circumstances or outcomes.
The material contained herein is not necessarily complete and is also wholly insufficient to be exclusively relied upon as research or investment advice or as a sole basis for any financial decisions, including investment decisions or making any kind of consumer choices, without further consultation with Anglia Advisors or other qualified Registered Investment Advisor. The user assumes the entire risk of any decisions made or actions taken based in whole or in part on any of the information provided in this or any other Anglia Advisors published content.
Under no circumstances is any of Anglia Advisors’ content ever intended to constitute tax, legal or medical advice and should never be taken as such. Neither the information contained or any opinion expressed herein constitutes a solicitation for the purchase of any security or asset class. No client advice may be rendered by Anglia Advisors unless or until a properly-executed Client Engagement Agreement is in place.
Posts may contain links or references to third party websites or may post data or graphics from them for the convenience and interest of readers. While Anglia Advisors might have reason to believe in the quality of the content provided on these sites, the firm has no control over, and is not in any way responsible for, the accuracy of such content nor for the security or privacy protocols that external sites may or may not employ. By making use of such links, the user assumes, in its entirety, any kind of risk associated with accessing them or making use of any information provided therein.
Those associated with Anglia Advisors, including clients with managed or advised investments, may maintain positions in securities and/or asset classes mentioned in this post.
If you enjoyed this post, why not share it with someone or encourage them to subscribe themselves?
