Reciprocal tariffs started last night. Markets remain hesitant as financial conditions tighten, but agree with Newton that near-term probabilities favor a rally. Array ( [cookie] => d59286-d18061-8600bc-1a2c5f-21ffe4 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [user_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

NO VIDEO TODAY: I am on a continental flight today so unable to record a video

The fact that President Trump signed the executive order for 104% tariffs for China is not positive, but it was also mostly expected. Every single day since tariff “Liberation Day” has brought news events triggering market moving bouts of volatility. In today’s session (Tue), equities initially surged >4.5% before reversing into the close -1.5%, or a total intraday move >6%.

• The weakness began late morning as White House officials confirmed that the >100% tariffs for China were set to be implemented tonight. This naturally worried markets to the extent as the tensions between China and US is not de-escalating.
• Keep in mind, the tariff war really differentiates between US-China and US-other trading partners. So, an escalated level of tariffs with China is expected. But we also know many US companies now face higher duties starting Wed, small businesses and corporations.
• The fact that stocks reversed was not a positive development. This is something Mark Newton addressed in his comments tonight. The VIX also closed higher today at 52, and while that might seem staggeringly high, it is only the 70th highest ever close for the VIX. The VIX has seen higher closes during the GFC (2008) and COVID-19 (2020).
• Financial conditions tightened today in credit, so this is something we are watching and reflects markets turning incrementally gloomy as there was no “reprieve” from the tariff deadline. In a way, markets have been pricing in mini “binary event” — there was a possibiity of a delay (“floated”) and it would have prevented a tightening of financial conditions. And tighening financial conditions have a further drag effect on the economy.
• TWO PATHS: UNCERTAIN AT THIS TIME. Think of it this way. There is still a window for this tariff war to follow a path that leads to the economy and equity markets to reach a positive outcome. What is key is for visibility to emerge for how the various nations reach the “equilibrium” reciprocal tariff agreements with the US, and in particular the 7 most important nations (Canada, Mexico, EU, Japan, South Korea, Vietman and China).
• POSITIVE PATH: OUR VIEW BUT ODDS KEEP DIMINISHING… This positive path probably is some extensive bilateral agreements, leading to the US having an overall reduced trade deficit with this nation and while this doesn’t mean the deficit needs to go to zero (Navarro), a path to improving the deficit would be largely beneficial to the US. This path can become visible if:
  – US announces the broad outlines of such an agreement
  – is this with Japan or South Korea first?
  – this can be a template for creating a roadmap to future agreements
• NEGATIVE PATH: The negative path is these reciprocal tariffs are going to be viewed as the destination. And the variation is that these tariffs are in place for an extended period of time that this is effectively “freezing” the economy:
  – US businesses do not know how to react, since these new duties are a meaningful share of cash flow
  – according to a technology analyst, this may represent 70% of the operating cash flow for some tech device cos
  – this is effectively “nationalizing the cash flow” of a company
  – but the “shock” to the economy ripples leading to a cascade of slowing economic activity
  – the longer this “shock” period lasts, the larger the ripples
  – and this is coming at a time when financial conditions are worsening because of the downdraft in stock market activity
• As many have stated (including Tom Block, Fundstrat’s Head of Policy Strategy), this path is determined by a single person, President Donald Trump. And when he makes a decision, it leads to a binary outcome. If incremental developments happen swiftly enough, we track the positive case.
• In our view, we expect the US to track the positive case but we acknowledge the probabilities decay the longer this takes to resolve. The White House wants to track the positive case. Multiple officials have stated they do not want nor expect a recession. And there are enough economy-savvy advisors that they are aware of this. Moreover, the 2%-3% fiscal stimulus needed to reverse a recession would negate any promised cuts to government spending. This is a rational view.
• In the last few days, we have had many conversations with macro fund managers. And their concern is that the White House is not acting rationally, but rather on ideology. And some even fear that this may not even be ideology. A few have quietly wondered if the President might be insane.
• This is why Mark Newton’s comments tonight matter to us. This battle is playing out in the equity markets. The S&P 500 is severely oversold by any measure. And Monday evening triggered enough conditions for an oversold rally to start. And we saw some of this on Tuesday.
• But if stocks begin to fail here, this would point to the rising probability we are facing a prolonged period of tightening financial conditions. Thus, the longer this volatility lasts, the greater the risk the US and the world are getting pushed into a needless recession.
• This is not the path at the moment, but this failure of the rally was a bad sign. According to Newton:
  – the bottom is still likely within the next 3-7 trading days (or so)
  – he expects a rally to last to June but this is a guess
  – recapturing S&P 500 5,500 or so is key
  – and there needs to be good breadth
  – ideally, this would happen in the face of bad news, not good news
• We also know markets would see a significant rally on de-escalation. On monday, the headline of “possible delay by 90 days except China” triggered an 8% rally. Was this a “trial balloon” by the White House? It is a reminder how oversold equities are and to Mark’s point, we are due for a significant and sustained move higher when it starts.
• I just don’t think this is time for investors to think of worse scenarios, since this current scenario is already bad. As we stated earlier this week, the “covenant of capitalism” was broken as companies expect a stable and predictable regime to earn a cost of capital.
• If one is negative, keep in mind there is likely a major rally that is on the horizon. And as for further near-term downside, anything is possible, if China further escalates. But other than than, it is harder to get lower than 5% of stocks >20 dma. It is really after we rally to higher levels that it may be a time for investors to then assess whether a gloomier picture emerges.

BOTTOM LINE: China is escalating, but odds favor de-escalation everywhere else

We listed the risks above and we want to close with a list of possible positives that could prevent wider fallout for US consumers and businesses:

• US and Japan expedite reaching an agreement and this happens in a short time frame
• It is best to expect the other 6 nations to get a similar deal together
• and this is acceptable to other nations, US cos and for equity markets
• this has to be done on a timely basis
• this works even if China-US remain non-communicative
• China decides to engage and/or relents
• Global central banks unleash easing
• Oil falling, while visibly bad, is leading to lower gasoline prices
• CEOs and small business owners get an “ear” with Trump and he eases
• President Trump declares victory earlier than expected

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Key incoming data April:

• 4/1 9:45 AM ET: Mar F S&P Global Manufacturing PMI Tame
• 4/1 10:00 AM ET: Mar ISM Manufacturing PMI Tame
• 4/1 10:00 AM ET: Feb JOLTS Job Openings Tame
• 4/2 10:00 AM ET: Feb F Durable Goods Orders MoM Tame
• 4/3 8:30 AM ET: Feb Trade Balance Tame
• 4/3 9:45 AM ET: Mar F S&P Global Services PMI Tame
• 4/3 10:00 AM ET: Mar ISM Services PMI Tame
• 4/4 8:30 AM ET: Mar Non-farm Payrolls Hot
• 4/7 9:00 AM ET: Mar F Manheim Used Vehicle Index Tame
• 4/8 6:00 AM ET: Mar Small Business Optimism Survey Tame
• 4/9 2:00 PM ET: Mar FOMC Meeting Minutes
• 4/10 8:30 AM ET: Mar Core CPI MoM
• 4/11 8:30 AM ET: Mar Core PPI MoM
• 4/11 10:00 AM ET: Apr P U. Mich. 1yr Inf Exp
• 4/14 11:00 AM ET: Mar NYFed 1yr Inf Exp
• 4/15 8:30 AM ET: Apr Empire Manufacturing Survey
• 4/16 8:30 AM ET: Mar Retail Sales
• 4/16 10:00 AM ET: Apr NAHB Housing Market Index
• 4/16 4:00 PM ET: Feb Net TIC Flows
• 4/17 8:30 AM ET: Apr Philly Fed Business Outlook
• 4/17 9:00 AM ET: Apr M Manheim Used Vehicle Index
• 4/23 9:45 AM ET: Apr P S&P Global Services PMI
• 4/23 9:45 AM ET: Apr P S&P Global Manufacturing PMI
• 4/23 10:00 AM ET: Mar New Home Sales
• 4/23 2:00 PM ET: Apr Fed Releases Beige Book
• 4/24 8:30 AM ET: Mar P Durable Goods Orders MoM
• 4/24 8:30 AM ET: Mar Chicago Fed Nat Activity Index
• 4/24 10:00 AM ET: Mar Existing Home Sales
• 4/25 10:00 AM ET: Apr F U. Mich. 1yr Inf Exp
• 4/28 10:30 AM ET: Apr Dallas Fed Manuf. Activity Survey
• 4/29 9:00 AM ET: Feb S&P CS home price 20-City MoM
• 4/29 10:00 AM ET: Apr Conference Board Consumer Confidence
• 4/29 10:00 AM ET: Mar JOLTS Job Openings
• 4/30 8:30 AM ET: 1Q A GDP QoQ
• 4/30 8:30 AM ET: 1Q ECI QoQ
• 4/30 10:00 AM ET: Mar Core PCE MoM

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: