Now That the Tariff Threat Is a Reality, How Hard Will It Hit?
The market is struggling to determine the economic impact of tariffs and how long they will last.
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Investors have been nervous about the potential for tariffs from the moment that Donald Trump started his second term. So far, they have primarily been a bargaining chip, but they are now scheduled to be implemented against Mexico, Canada, and China on Tuesday. Trump has also indicated that further tariffs will be imposed on the European Union and elsewhere at the start of April.
The announcement of tariffs on Monday afternoon hit the market hard with an aggressive selloff on poor breadth. The primary problem is that no one knows what the impact of these tariffs might be.
According to currency experts, the price action in the Mexican peso and Canadian dollar suggests that the market doesn’t believe the tariffs will stay in place for long, but it is highly uncertain, and if it isn’t already obvious, the market hates uncertainty.
The economic fallout of tariffs is not known at this time, making it extremely difficult for the market to rally. In addition, there are growing signs of economic slowing, and President Trump will be giving a speech at a joint session of Congress on Tuesday night, which may contain even more economic surprises.
The bulls are hopeful that Trump will not have much tolerance for a weak stock market, but there are indications that he is willing to allow short-term pain for longer-term gain. We’ll see rather quickly how much willingness there is to modify the tariffs if they are not producing the economic behavior that is sought.
The bottom line is that the market is a mess due to the tremendous uncertainty. The technical action on Monday was bad enough to push Investors Business Daily to drop its recommended market exposure to 0-20%, which indicates a market correction.
I continue to look for some signs of rotational action to replace the Magnificent Seven MAGS, which are no longer leaders. There has been some movement toward the safety of pharmaceuticals and consumer products, but oil and small-caps IWM are being slammed. Bitcoin IBIT has quickly given back all of its weekend gains.
My best advice is to protect capital and stay patient while the market struggles to figure out the tariff uncertainty. There is no need to rush to put precious capital to work when the market is as confused as it is now. Watch the charts and the price action, but wait for some strength in prices to indicate that a positive trend is developing.
We have a mixed start early on Tuesday. There is no significant economic data due.
At the time of publication, Rev Shark was long IBIT.
