While tariff headlines continue to roil markets, multiple reasons to expect markets to find their footing before the April 2 tariff deadline

VIDEO: Equity markets continue to be roiled by White House headlines.  While the tariff deadline is 3 weeks away, this doesn’t means stocks will see pressure until 4/2.  A look at the 1962 Cuban Missile crisis shows that markets bottomed ahead of the conclusion of the crisis.

Please click below to view our Macro Minute (duration: 8:12).

In what feels like another “death by 1,000 cuts” the S&P 500 fell -1.4% after Europe and the White House mutually escalated planned tariffs on spirits. Stating the obvious, equity markets are roiled by “tariff” headlines (smaller extent is DOGE), trumping recent positive inflation developments (NY Fed Monday, Feb Core CPI Wednesday, Feb Core PPI Thursday). Equity markets continue to bleed lower, roiled by incoming headlines.

• These tariffs are set to go into effect on April 2. That is still 3 weeks away. And for investors, this is an eternity. Moreover, given the impact of the headlines, many wonder how markets can manage through the next 3 weeks. In short, many are arguing that going to cash is the only “sane” strategy.
• In our view, this does not make sense for several reasons. Let me explain:
  – Why not “go to sidelines” until April 2?
  – Tariff observation: very little “bashing” China and Mexico
  – White House walking back “detox pain” on economy
  – Fed FOMC meeting and rate decision next week
  – Significant pain already inflicted on hedge funds
  – Retail sentiment negative by multiple measures
  – Equity markets oversold in one of the fastest corrections ever
• With the tariffs set to go into effect on 4/2, one might be tempted to argue that going away for the next 3 weeks makes sense. However, this is premised on the notion that April 2nd is the date of resolution. That is:
  – the tariff negotiations could see a breakthrough before 4/2
  – in 2018, stocks bottomed well before the July 2018 tariff deadlines
  – notably, we think it is interesting that there is little “bashing” of China & Mexico
  – is it possible progress is being made on those fronts?
• Even the 1962 Cuban Missile Crisis shows that markets bottomed well ahead of the actual conclusion of the crisis:
  – The crisis lasted from 10/16 to 10/28, or 12 days
  – Initially, stocks fell -5% 10/16 to 10/23, or 7 days
  – from 10/23 to 10/28, stocks rallied 4%
  – recovering 2/3 of the losses
• Basically, in 1962, the equity markets bottomed halfway into the crisis. This is something to keep in mind. At that time, it was a World War that was threatened, between Russia and USA. The tariff wars are far less risky (in terms of lives) but the stock market has fallen a larger -10%.
• One thing to be mindful of is the countries/regions on the other side of this tariff war continue to outperform the US:
  – China +19% vs S&P 500 since 2/18
  – Europe +12%
  – Mexico +8%
  – Canada +2%
• Canada and Mexico are arguably almost guaranteed to enter recession if the tariffs are implemented on 4/2. So either equity markets outside the US are somehow oblivious to the economic consequences of the tariffs, or this is evidence investors see the tariff threats as negotiating tactics.
• Moreover, we think the White House is starting to walk back the statements of “detox pain ahead could mean recession” — Scott Bessent Thursday on a CNBC interview:
  – question:  Is that a euphemism for recession?
  – Bessent: Not at all. Doesn’t have to be. Because it will depend on how quickly the baton gets handed off. You know our goal is to have a smooth transition.
• That is actually quite a change from prior statements about “pain ahead” and the non-pushbacks to “there could be a recession” — to us, on the margin, one could see this as an example of a “Trump put” reflected on the economy and by transitive on equity markets.
• The Fed is meeting next week and the March FOMC rate decision is on March 19th (Wednesday). While there are no expectations for a cut in this meeting, the focus will be on Fed Chair Powell’s view on policy as signs of tariff uncertainty-driven economic weakness grow. Overall, it would be a surprise to see a hawkish Fed given the relatively tamer inflation data and the growing signs of economic weakness.
• Obviously, what would be the most helpful is to know if investors have sufficiently deleveraged so that equity markets are near a sustained bottom. We know sentiment is terrible. And we have written about this extensively in the past few weeks.
• Mark Newton, our Head of Technical Strategy, is still looking for signs of capitulation. But he also sees a window for a low emerging:
  – Per Newton: It’s expected that lows to this selloff could be achieved within the next two weeks from a timing perspective, and prices are nearing possible support…Overall, we’re growing closer. 
• Lastly, stocks fell 10% in 20 calendar days. This is the 5th fastest ever in the past 75 years. To us, we think stocks have over-reacted to the downside. This is also evidenced by looking at the 6 precedent cases where stocks fell 10% in less than 20 days since 1950:
  – date # Days Cause
  – 2/27/20 8 COVID
  – 2/8/18 13 Trade War 1.0
  – 10/11/55 18 Eisenhower heart attack
  – 6/29/50 17 Korean War
  – 10/25/79 20 Volcker Shock
  – 10/27/97 20 Asian Financial Crisis
• Each of the above is a “fire ready aim” moment, especially the start of the pandemic. At that time, equities fell 10% in only 8 trading days. As shown below (see table), the stock market is higher 1M, 3M, 6M and 12M later:
  – 5 of 6 times, higher 1M later (except covid)
  – 6 of 6 times, higher 3M later, median gain 9%
  – 6 of 6 times, higher 6M later, median gain 15%
  – 6 of 6 times, higher 12M later, median gain 21%

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Key incoming data March:

• 3/3 9:45 AM ET: Feb F S&P Global Manufacturing PMI Tame
• 3/3 10:00 AM ET: Feb ISM Manufacturing PMI Tame
• 3/5 9:45 AM ET: Feb F S&P Global Services PMI Tame
• 3/5 10:00 AM ET: Feb ISM Services PMI Tame
• 3/5 10:00 AM ET: Jan F Durable Goods Orders Tame
• 3/5 2:00 PM ET: Mar Fed Releases Beige Book Tame
• 3/6 8:30 AM ET: 4Q F Non-Farm Productivity Tame
• 3/6 8:30 AM ET: Jan Trade Balance Tame
• 3/6 8:30 AM ET: 4Q F Unit Labor Costs Tame
• 3/7 8:30 AM ET: Feb Non-Farm Payrolls Tame
• 3/7 9:00 AM ET: Feb F Manheim Used Vehicle index Tame
• 3/10 11:00 AM ET: Feb NY Fed 1yr Inf Exp Tame
• 3/11 6:00 AM ET: Feb Small Business Optimism Survey Tame
• 3/11 10:00 AM ET: Jan JOLTS Job Openings Tame
• 3/12 8:30 AM ET: Feb CPI Tame
• 3/13 8:30 AM ET: Feb PPI Tame
• 3/14 10:00 AM ET: Mar P U. Mich. Sentiment and Inflation Expectation
• 3/17 8:30 AM ET: Feb Retail Sales Data
• 3/17 8:30 AM ET: Mar Empire Manufacturing Survey
• 3/17 10:00 AM ET: Mar NAHB Housing Market Index
• 3/19 9:00 AM ET: Mar M Manheim Used Vehicle index
• 3/19 2:00 PM ET: Mar FOMC Decision
• 3/19 4:00 PM ET: Jan Net TIC Flows
• 3/20 8:30 AM ET: Mar Philly Fed Business Outlook
• 3/20 10:00 AM ET: Feb Existing Home Sales
• 3/24 8:30 AM ET: Feb Chicago Fed Nat Activity Index
• 3/24 9:45 AM ET: Mar P S&P Global Manufacturing PMI
• 3/24 9:45 AM ET: Mar P S&P Global Services PMI
• 3/25 9:00 AM ET: Jan S&P CoreLogic CS home price
• 3/25 10:00 AM ET: Mar Conference Board Consumer Confidence
• 3/25 10:00 AM ET: Feb New Home Sales
• 3/26 10:00 AM ET: Feb p Durable Goods Orders
• 3/27 8:30 AM ET: 4Q T GDP
• 3/28 8:30 AM ET: Feb PCE Deflator
• 3/28 10:00 AM ET: Mar F U. Mich. Sentiment and Inflation Expectation
• 3/31 10:30 AM ET: Mar Dallas Fed Manuf. Activity Survey

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: