Market Calls for Emergency Cut, but We Haven't Capitulated on Tariffs Yet

Talking to some large market makers, there had been large pre-open buying of ETFs. This is a continuation of what we saw late last week, where despite all the capitulation talk — ETFs, especially risky ones like TQQQ and SOXL (using leverage) had big inflows.

I do not think we have seen capitulation on the stock front. Nor, quite frankly, on the tariff front.

The messaging was a bit inconsistent (and it's difficult to tell if that's a negotiating point, and if so, what the end result might be or how they could be something used to reduce deficit and/or bring manufacturing back to the U.S.). In any case, the message did seem to tilt toward "higher for longer," at least as I read the news flow. Also, and I think this is very important, so far it looks like smaller, less wealthy countries (low per capital GDP) seem to be reaching out, if headlines are to be believed. Many of these countries were charging tariffs, according to Grok, in the 4% to 10% range, so deals won’t solve much and these countries quite simply aren’t wealthy enough to buy a lot of high-margin U.S. goods.

I am thinking a lot that Treasury Secretary Scott Bessent in particular, but others, have focused on how little of the stock market is owned by the average U.S. citizen. They want to build up a middle class (a goal that I highly support) and to do so, I do not believe there is a Trump put so long as they believe their actions are leading them to the desired goal. (I think they are making policy mistakes, but they clearly believe their plans will work, so expect them to stick to their plans as rebuilding the middle class is far more important than some “temporary” noise in stocks.)

Futures have rallied since 3 a.m. ET, for a variety of reasons, but I am hearing more and more about the possibility of emergency rate cuts and the president did send this out on Truth Social:

An emergency rate cut would presumably help, but I find it difficult to believe that, after speaking about balanced risks on Friday, Fed Chair Jerome Powell will cut rates any time soon.

I got long risk ahead of the weekend, hoping for some positive news. I’ve sold it all into this bounce and will be looking to short risk again (primarily on Nasdaq 100, but possibly S&P 500 — via ETFs).

Without a policy change, and without Fed intervention, I think things will get worse before they get better. I’m viewing the rally from 3 a.m. ET in futures as a “reprieve” from bad decisions on Friday — I still lost money on those purchases, but far less than it looked early Sunday when futures opened.

I understand the desire to buy the dip and to point to so many sentiment indicators to say we’ve had capitulation, but I just don’t see that (with ETF flows as a big reason) and cannot get there with my own capital.