Tariff and Economic Uncertainty Are Creating Bear Market Technical Conditions
Bears have the downside momentum, with bounces viewed as an opportunity to escape the misery of the market.
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For the second time in a month, President Trump reversed course on tariffs on Mexico and Canada. This time, the market didn’t bounce back after the change in policy. It continued to trade lower, and the indexes closed at the lows of the day on Thursday.
The problem is that the tariff issue is far from resolved, and no one knows what policy will finally take hold or what its impact might be. Without some degree of certainty, investors are unable to discount the economic impact and adjust the price of stocks. In other words, the market hates uncertainty because it can’t establish a fair market value.
An additional problem is that tariffs aren’t the only issue that is uncertain. The economy is in a state of flux with rising concerns that growth is slowing and inflation is sticky. There has been an increase in talk about the dreaded "S" word — stagflation.
On Friday morning, the February jobs news will be released, which will help to propel the economic narrative. There already is a growing forecast that GDP for the first quarter of 2025 may be negative, and if jobs continue to contract, then talk about a recession will gain traction.
A weaker economy makes it more likely that the Fed will cut rates later this year, but not if inflation starts to drop more quickly. Slower growth with stubborn inflation is the Fed’s nightmare. Fed Chair Powell will be speaking on Friday, and the market will be listening carefully for any clues as to shift in the Fed’s longer-term policy.
In addition to the uncertainty of tariffs and the economy, the market is also dealing with a technical mess. The Nasdaq has now fallen more than 10% from its highs, which puts it in a technical correction. The Magnificent Seven MAGS and AI-related stocks are no longer leaders. Growth stocks in the Innovator IBD 50 ETF FFTY were slaughtered for a loss of over 5%.
The bears have the downside momentum, and because of the tariff and economic uncertainty, there are no signs of technical support. At this point, bounces are viewed as an opportunity to escape the misery of the market. Dip buyers have had little success, and those who are trying are flipping for fast gains into minor strength.
The good news is that many stocks with solid fundamentals are being mispriced, but it won’t matter until market conditions improve.
At the time of publication, Rev Shark had no positions in any securities mentioned.
