Some thoughts and questions about what’s going on in the market these days:
There is still a veto in the market. It was the first time I’ve been nervous about the possibility of a financial crisis that has seen bond yields scream Tuesday night.
The bond market is probably what scared the White House at a 90-day suspension of tariffs. New York Times Same said:
According to four people who know first-hand the president’s decision, economic turmoil, particularly the rapid rise in government bond yields, Trump blinked Wednesday afternoon and suspended “mutual” tariffs for most countries for the next 90 days.
Selling bonds has probably been some over-investment investors, with people raising cash and foreign governments hitting the sell button.
Regardless of the reason, the decline in stock markets and rising bond yields, slower economic growth and the prospect of higher inflation were sufficient to force a suspension of tariff policies.
The bond market forced Trump’s hands for the time being.
The stock market is being repricing quickly. Over the past six days, the S&P 500 has experienced daily movements of -4.8%, -6.0%, +9.5%, and -3.5%%.
The repricing is happening on the spot with little notice.
We went from one of the worst three-day runs to one of the best days of all time within a week, followed by another big down day.
According to my data, Wednesday’s huge move was the 10th best day ever for the S&P 500, dating back to 1928.
It didn’t last long.
Please see the actions before and after this:
The market is constantly moving faster and there are no signs of slowing down.
It may be in a recession. This comes from Wall Street Journal:
Trump played his cards near his vest. He was willing to tell his advisor that he would be willing to take “pain,” someone who spoke to him on Monday told him. He personally acknowledged that his trade policy could cause a recession, but according to people familiar with the conversation, he said he wanted to make sure it didn’t cause depression.
I didn’t expect to see the president intentionally push us into the recession, but he sounds like he’s taking it seriously. I hope to get some transactions and details so that the companies and markets can move on.
However, it certainly appears that the probability of a recession is rising day by day.
Is this another forgotten bear market? Think through the other side of further stock market pain – what if it was at the bottom?
The stock market temporarily fell more than 20% in the futures market on Sunday night, but so far the closure is a drawdown from the 18.9% peak to the trough.
We technically did not reach the definition of the 20% bear market. Over the years, there have been many close calls:
- 1976-1978: -19.4%
- 1990: -19.9%
- 1998: -19.3%
- 2011: -19.4%
- 2018: -19.8%
Is there a difference between a 20% decrease from 19% below?
Only in the eyes of history books.
The stock market is not always the right scoreboard. This photo of Jim Kramer was made a round on social media in April 2020.
The economy was crashing, millions of people were losing jobs, but the stock market was flying.
While the economy was in a state of interrupted animation, people couldn’t believe the stock market was crazy. That didn’t seem fair, but the stock market is looking to the future (and it was soon).
This time, you may see similar dynamic play. Businesses and consumers have not yet felt the impact of tariffs.
We don’t know if we’re going to be in a recession, but let’s pretend we’re there for the purposes of scenario planning.
Before you start sniffing the actual recession, you can set it up for a situation where the stock market is crashing. And if we are in a recession (still) we can see the stock market rise while the economy is stalling.
I was able to see the results of hitting my head in the coming months and years.
So, as we move forward, it makes more sense to pay attention to the impacts on inflation, economic growth, interest rates and unemployment.
We haven’t left the forest yet. A good day on the stock market was not the end of this ordeal.
The dollar continues to decline. Bond yields continue to rise sharply. Stocks are falling all over the world once again. The tariffs are as high as decades in the way the plans are currently being built.
I don’t know how this will unfold. Maybe Trump will maintain his troublesome tariffs and the global economy will have to adapt. Maybe the market continues to punish his policies, and he taps completely.
My only way of thinking right now is that the scope of this outcome has increased significantly over the past month or so.
There are no boring moments in the 2020s…
Michael and I talked about all of the market madness this week about animal spirits.
https://www.youtube.com/watch?v=xudjc64rn50
Subscribe to Compounds Therefore, you never miss an episode (I don’t – I recorded this during spring break).
Read more:
A short history of tariffs
Here’s what I’ve been reading recently:
