V-Shaped Recovery Feasible Despite Stock Decline

Our Views

Tom Lee, CFA
Tom Lee, CFA
AC
Head of Research
  • Many market participants remain cautious ahead of April 2, which marks Tariff Liberation Day, yet we view current market action as a repeat of the setup from 2018 during the first wave of tariffs under President Donald Trump’s administration. In 2018, equities bottomed on Feb. 19 after a sharp 12% drop that was triggered by Trump’s comments on tariffs at Davos on Jan. 26.
  • We believe that we are now in that same setup, with the current rally supported by negative sentiment and technical resilience. If the 2018 comparison holds, equities could be poised for sustained upside.
  • Broader global performance and policy expectations further bolster the bull case. International equity markets are outperforming U.S. stocks, possibly signaling optimism around tariff negotiations or global reflation.
Read the Latest First Word
Mark L. Newton, CMT
Mark L. Newton, CMT
AC
Head of Technical Strategy
  • Near-term equity index trends remain bullish as the recent pullback has done little to damage the trend from 3/13/25 lows. 
  • Despite some investors expressing skepticism about the most recent rally being just a “Dead-Cat Bounce,” there are ample technical signs that this move should be underway despite the recent sluggishness. 
  • Both Treasury yields and the U.S. dollar have slowed their rate of descent, but intermediate-term trends in both remain bearish. Following some whip-saw-like trading into next Wednesday (April 2), I expect equities to start to turn higher more quickly.
Read the Latest Daily Technical Strategy
Sean Farrell
Sean Farrell
AC
Head of Crypto Strategy
  • Some of the risks that prompted our cautious stance in early February have been partially mitigated, but most remain—with the ongoing trade war still the most pertinent. 
  • Therefore, we believe it remains prudent to exercise patience. 
  • That said, improving liquidity conditions, favorable seasonality, and the possibility of a budget-neutral BTC acquisition strategy offer reasons for optimism. Regardless of the direction, depressed implied volatility (BVIV <50) suggests that a significant move (15%+) may be imminent.
Read the Latest Crypto Strategy
L . Thomas Block
L . Thomas Block
Washington Policy Strategist
  • Leaders around the world have been speaking with the Trump administration in an effort to mitigate the impact of tariffs, and with April 2 coming up next Tuesday, we should see what their efforts have accomplished.
  • Meanwhile, House and Senate Republicans continue working on finalizing a Budget Resolution that will enable the funding of Trump’s agenda without the threat of a filibuster from Senate Democrats.
  • A key obstacle to such a solution involves whether to increase the debt ceiling, a continuing issue of contention within the Republican party. 
Read the Latest US Policy

Wall Street Debrief — Weekly Roundup

Key Takeaways

  • The S&P 500 slipped 1.53% to 5,580.94 this week, while the Nasdaq fell 2.59% to 17,322.99. Bitcoin was at 83,825.10 on Friday afternoon, down about 2.5% from Monday levels.
  • Despite the latest weekly decline, Fundstrat Head of Research Tom Lee sees the likelihood of a V-shaped recovery for stocks in the near term.
  • Head of Technical Strategy Mark Newton acknowledged the market's recent two-steps forward one-step back trajectory, but he views the recovery as still gaining steam after the key date of April 2.

"Life sounds good on people.” – Alison Krauss

Good evening, 

Last week's rally extended into the early part of this week before sputtering out midweek, dragged by auto tariffs and a slide in consumer confidence. The declines accelerated Friday after the release of weakened consumer sentiment data. Though this week ultimately ended with the S&P 500 down 1.56%, Fundstrat Head of Research Tom Lee believes that equities bottomed on March 13. To be sure, there appears to be some degree of market uncertainty ahead of April 2, aka "Tariff Liberation Day," but Lee sees parallels between the market's reaction to Trump 2.0's tariff regime and the tariffs of Trump 1.0. 

In 2018, Trump made remarks about tariffs at Davos on Jan. 26, triggering a plunge until Feb. 19, when the VIX surged and equities bottomed, with the S&P 500 retreating to support above the 200-day moving average. Investor sentiment measures showed bearishness continuing well after that bottom. "If we fast-forward to 2025, a similar pattern appears to be unfolding," Lee noted, so "if the 2018 comparison holds, equities could be poised for sustained upside." 

If so, Lee suggested that the market recovery might "evolve into a V-shaped recovery – a so-called 'face ripper,' especially after April 2." He noted that further support for the risk-on thesis could emerge as investors recall the possibility of pro-growth tax cuts and lower regulatory costs as Trump's term continues.

Head of Technical Strategy Mark Newton holds a similar – if not precisely identical – view. From his perspective, the market is on a “two-steps forward, one-step backward" trajectory, and the week's pullbacks "[haven't] proven damaging to this recovery effort," noting that the S&P 500 remains nearly 200 points above the point at which he views it as having bottomed two weeks ago. Newton also notes a potential near-term bullish tailwind from the likely pension rebalance as the end of the month and first quarter approach. 

U.S. exceptionalism 

Of late, international equity markets have outperformed the U.S. stock market. Lee and Newton offer two perspectives on this. Our Head of Technical Strategy acknowledged recent underperformance by the S&P 500 relative to the All-Country World Index (ACWI -1.52% ), but he believes that enthusiasm for international equities "might be an overreaction." 

Newton noted that when viewed as a ratio, SPY -0.84%  versus ACWI -1.52%  "has not violated long-term uptrends going back more than a dozen years." He added, "Overall, I like overweighting U.S. stocks vs. ACWI for 2025. My view is that the U.S. dollar decline won’t persist into 2026 and that tariffs likely won’t prove as damaging to the U.S. economy and by extension, the U.S. stock market as many are suggesting."

Lee, for his part, has a similar view on tariff uncertainty, seeing possible signals about economic policy in recent non-U.S. outperformance. He suggested that this could be viewed as "optimism around tariff negotiations" among investors abroad – a view that the tariff rhetoric is possibly more of a negotiation strategy rather than an actual desire to start a trade war. We see this illustrated in our Chart of the Week. For now, all eyes are on April 2.

Elsewhere

The death toll from a Friday 7.7 quake in Myanmar is expected to rise steeply, with reports of major structures collapsing in both Myanmar and Thailand. The Stock Exchange of Thailand suspended trading on Friday afternoon in response. The quake was so powerful that even in southwest China, more than 800 miles away, roads cracked and bridges partly collapsed. As of Friday afternoon, the death toll was at least 144 in Myanmar and 10 in Bangkok, with hundreds unaccounted for.

A recent poll found that 75% of U.S.-based scientists are considering leaving the country due to Trump's attacks on science that include funding cuts and research restrictions. The sentiment, as seen in a poll of 1,600 scientists conducted by Nature, has not gone unnoticed, with Germany and France both working to incentivize any decisions to move and facilitate the process for those who decide to seek greener pastures.

Trump suggested he might reduce tariffs on Chinese goods in exchange for Chinese approval of a TikTok sale. A previously signed executive order regarding the sale of TikTok by its Chinese parent ByteDance has an April 5 deadline, though Trump suggested it could be extended.

As Signalgate continues to unfold, U.S. downloads of the messaging app have surged, doubling on a week-over-week basis. The increase has not gone unnoticed, with the app's co-founder, Matthew Rosenfeld (aka Moxie Marlinspike), joking about how his app offers "the opportunity for the vice president of the United States of America to randomly add you to a group chat for coordination of sensitive military operations." Jun Harada, Signal's head of growth and partnerships, described the week's surge in downloads as "the largest U.S.-growth moment [in Signal's history] by a massive margin."

Trevor Milton, the founding CEO of Nikola who was convicted of securities fraud in 2022, was pardoned on Friday. Milton, who was represented by Brad Bondi, brother of U.S. Attorney General Pam Bondi, was alleged to have lied to investors about Nikola's electric-truck technology. 

And finally: The University of Maryland has named Kermit the Frog as its 2025 commencement speaker. University officials described Kermit as a well-known environmental advocate, best-selling author, Peabody Award-winner, and international superstar. (Kermit's creator, Jim Henson, was a UMD alumnus, class of 1960.) As of this writing, there was no word if Miss Piggy would be in attendance. 

Important Events

S&P Global U.S. Manufacturing PMI, March final
Tue, Apr 1 9:45 AM ET
ISM Manufacturing, March
Tue, Apr 1 10:00 AM ET

Est.: 49.8 Prev.: 50.3

Change in Nonfarm Payrolls, March
Fri, Apr 4 8:30 AM ET

Est.: 135K Prev.: 151K

Stock List Performance

Strategy YTD YTD vs S&P 500 Inception vs S&P 500
Upticks
-15.02%
-9.84%
+25.01%
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Small Cap Stock List Performance

Strategy YTD YTD vs Russell 2500 Inception vs Russell 2500
SMID Granny Shots
-12.30%
-4.45%
+13.04%
View
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