'Ugly Combination' Has Market in a Down Cycle as It Contends With 3 Major Issues
Trump's comment about a 'period of economic transition' is driving a sharp drop Monday morning.
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The one great certainty of the market is cycles of ups and downs. The S&P 500 has been enjoying an upside cycle since mid-2022, but there are now worries that a down cycle is developing and gaining traction.
The catalysts for this shift in the market are growing concerns about economic growth and worries that there will be short-term pain from President Trump's economic policies. Tariffs have caused significant uncertainty, and this past weekend, Trump stated that there will be a "period of transition because what we're doing is very big."
Trump supporters such as Secretary of Commerce Secretary Howard Lutnick are confident that there will be no recession as the economy undergoes this transition. On Friday, Fed Chair Jerome Powell indicated that a recession is unlikely, but he also indicated that there is an unusual amount of uncertainty due to Trump's tariff policies.
All of this economic news is hitting at the same time that the market is ripe for a correction due to aggressive valuation and struggles for the AI theme. In some ways, the poor technical action is driving the negative market narrative, but downside momentum is taking hold, and the big question now is how deep does it go and how long will it last?
Unfortunately, it is going to take months before we have a reading on the effectiveness of tariffs. There still is no certainty about what tariff policies will ultimately be, and, as we've seen, they are subject to dramatic changes as negotiations continue.
The Trump administration is confident that the short-term economic pain will lead to long-term economic success, but all that the market sees is uncertainty. There is no guarantee if and when Trump's policies will work, and the business cycle is also making things more difficult.
What is plaguing the market right now is a combination of a slowing business cycle, uncertainty about Trump's economic policies, and deteriorating technical conditions. It is an ugly combination and there is little to do but to brace for more downside and wait for conditions to shift.
We have a poor opening on Monday morning, which is mostly due to Trump's comments about a period of economic transition.
At the time of publication, Rev Shark had no positions in any securities mentioned.
