Will Wall Street Be Forced to Admit There Is a Method to Trump's 'Madness'?
A skeptical market is surprised by a significant China trade agreement — and poor positioning is making this news even more powerful.
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News from the China-U.S. trade negotiations in Switzerland this weekend is much better than expected and sending equity indexes sharply higher Monday morning. It was expected that reciprocal tariffs would be reduced from 125%, but it is a major surprise that they will drop all the way back down to 10%. A separate 20% "fentanyl trade" tariff remains. The tariff reductions will remain in place for 90 days while negotiations continue.
The market is celebrating the news with the Nasdaq 100 QQQ jumping almost 4% and Tesla TSLA gaining 7.8%.
Although the Trump administration has indicated a high level of optimism about progress on trade and tariffs, the overall market mood has been extremely pessimistic. There is a view that it is too late to avoid significant economic damage and that even without the trade turmoil, there are structural issues that are likely to cause an economic slowdown.
Poor positioning is making this positive news flow even more powerful. Shorts are being squeezed, and there is a very high level of fear of missing out (FOMO) because of the defensive posture of many investors.
In addition to the high level of skepticism, the market also benefits from a strong technical setup. This gap-up open pushes the S&P 500 and the Nasdaq 100 back up over their 200-day simple moving averages. It is looking like gap-and-run action, and even if the momentum doesn’t build during the day, there should be very significant underlying support.
One of the most interesting dynamics in play is that much of institutional Wall Street has embraced the idea that Trump’s economic policies would be an economic disaster. There was little talk about the possibility of success, and these pundits and strategists are very likely to maintain their pessimism rather than admit that maybe there is a method to the Trump madness.
I’ll be looking to put more capital into my work, but I will stay selective and not be undisciplined with entry points. It is important not to let FOMO drive you to make emotional decisions.
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At the time of publication, Rev Shark had positions in any securities mentioned.
