Tariff Fears Are Abating, But These Other Problems Are Not Going Away
As the S&P 500 continues to bounce, here's the primary question that investors must grapple with now.
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The market is jumping higher on Monday morning on news that President Trump is scaling back some of tariffs on cars, chips, and pharmaceuticals. Reciprocal tariffs are still set to hit on April 2, but Trump has clearly indicated a willingness to negotiate and modify the tariffs with trading partners, and market participants are relieved.
For a number of reasons, investors have been embracing a worst-case scenario for tariffs. Many economists keep predicting very aggressive long-term tariffs even though Trump has consistently delayed them and made modifications. There is a presumption that the president will persist in enacting tariffs that will have severe negative ramifications even though, so far, that has not been the case.
There is a tariff relief rally on Monday morning, with Bitcoin IBIT and Tesla TSLA up strongly as well. While it is still very uncertain what will ultimately happen with tariffs, the market has been too negative about them and is reassessing the potential fallout.
The tariff issue isn’t the only issue that the market has to deal with, however. There is still concern about potential economic slowing, rising unemployment, and sticky inflation. These issues will continue to exist even if the tariff issue isn’t as bad as feared.
The primary question that investors must grapple with is whether the bounce that started on March 14 can continue. Early on Friday morning, it looked like there was going to be a retest of the lows, but buyers stepped up, and the S&P 500 ended near the highs of the day. It was a good sign of support, and now, with the gap-up open on Monday morning, the market is back at the top of a trading range.
The next hurdle for the S&P 500 is the 200-day simple moving average at 5750. If that can be surpassed, it will be very positive, but the move would be "V-ish" and hard to trust without more consolidation.
The biggest hurdle the market is still dealing with is the very high level of uncertainty. There is some tariff relief on Monday morning, but the great likelihood is that tariff negotiations will continue, and some of the news may not be viewed as favorable by the market.
It is hard to trust Monday morning rallies, so I’ll be focusing on stock picking and position management.
At the time of publication, Rev Shark was long TSLA.
