Bonds Are Crashing as 104% Tariffs Go Into Effect Against China
Lower interest rates were supposed to be a positive consequence of the tariff turmoil, but that is backfiring and creates a very large problem for Treasury Secretary Bessent.
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Many were hopeful that the market was ready to rebound on Tuesday morning, but a record-setting reversal hit as high levels of uncertainty continued and sentiment crumbled. Now there is news early on Wednesday that China is responding to 104% tariffs on their goods by placing tariffs of 84% on U.S. goods.
There is also the additional problem of a selloff of bonds, which are typically viewed as a safe haven in times of economic uncertainty. Yields in U.S. Treasurys are spiking higher for a number of reasons, including a shift in the strength of the dollar and China dumping some of its U.S. bond holdings.
Lower interest rates were supposed to be one of the positive consequences of the tariff turmoil, but that is backfiring and creates a very large problem for Treasury Secretary Scott Bessent, who will soon be faced with the task of refinancing trillions in maturing government bonds.
The basic problem that the market is dealing with is tremendous uncertainty. No one knows if and when there might be some tariff deals made, and the Chinese situation is escalating with no solution in sight. Trump is losing a tremendous amount of political support from Wall Street and the business community and there appears to be very little interest in trying to time a market bottom.
The most frustrating aspect of a bear market is that stock picking doesn’t matter. The merits of individual stocks don’t matter when there is huge selling at the index level, which doesn’t care if the stock you like is a good value or not. Everything is sold no matter what it is and can sink far more than seems reasonable.
The good news is that this market action creates a major dislocation in the pricing of many individual stocks. They are trading on market conditions rather than on their own merits. Once things settle down, these stocks will start to be repriced, and therein lies the big opportunity.
My game plan is to keep developing a shopping list of stocks that have strong fundamentals that the market doesn’t care about right now. I listed several names on Tuesday and will have more in the days ahead.
The important thing is to stay patient and not worry about putting capital to work until there is better price action. The bull trap on Tuesday was a reminder of how dangerous the market can be when trying to time a turning point.
Stay upbeat and optimistic. It is hell out there right now, but when the smoke clears, there will be a sea of opportunity.
At the time of publication, Rev Shark had no positions in any securities mentioned.
