A Perfect Storm of Negatives and Uncertainty Roils the Market
It is impossible to quantify the impact of tariffs until we know what they will be.
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Following a brutal week, the indexes are set to open lower on Monday morning and undercut the fragile support established two weeks ago. Technology stocks lead the miserable action, but few are immune to the pressure. Breadth was almost 4 to 1 negative on Friday, and new 12-month highs increased to over 600 names.
Uncertainty about tariffs is receiving most of the blame for the poor action, but a perfect storm of negatives is coming into play. Recent economic reports showed that inflation remains sticky, consumers are less confident, retail sales are slowing, and unemployment is rising. Over the weekend, Goldman Sachs GS raised the odds of a recession in the next 12 months to 35% from 20%.
Not only is the negative news piling up but uncertainty continues to build. President Trump’s reciprocal tariffs are set to go into effect on April 2, and there are few details about the exact terms of these tariffs. Trump stated that he would start with "all countries" and made comments about broader and higher tariffs.
There is a high likelihood that this will be the opening salvo in negotiations, but in order for this strategy to be successful, Trump has to express a willingness to put harsh tariffs into place and suffer the market’s negative reaction. There is a high likelihood that tariffs will be quickly modified, but since no one knows when or how that will be done, there is little choice but to wait on the sidelines or in safe haves like bonds until there is greater clarity.
The tariff uncertainty is a major problem, but it is further complicated by growing worries about inflation and economic growth. There has been mild concern about the problem of stagflation, but that picked up last week when inflation news was hotter than expected, and consumer sentiment was weaker than expected.
Tariffs are contributing to economic concerns, but even without that issue, economic problems have been building for a while. A big part of this is the slowdown in the AI area. The Magnificent Seven MAGS has been leading the recent decline, and there are substantial worries that data centers are being overbuilt and demand is slowing fast.
The big immediate question is, "When will the market price be in the worst-case scenario?" That question cannot be answered at this point since tariff policy is unknown.
There is little to do right now but to stay patient and wait to see what happens with the tariff issue. The good news is that sentiment is becoming extremely negative, and that will set up a good bounce at some point. Just don’t be too anticipatory. Market risk is extremely high and will stay that way for a while.
At the time of publication, Rev Shark had no positions in any securities mentioned.
