Support Level We’re Eyeing as Market Comes to Grips With Trade War
As the market accepts that the Trump trade negotiations have blown up into a trade war, here's what's next.
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The Trump tariff-induced selloff looks to continue on Monday as the president held fast on the implementation of tariffs over the weekend.
Also, over the weekend, the White House team cited some 50 countries lining up to talk trade deals and the U.S. Senate approved the framework for Trump tax cuts, but it’s the implantation of tariffs and the potential implications that are the market’s focus right now. Trump’s across-the-board 10% tariff went into effect and reciprocal tariffs are set for later this week.
Folks were hoping to see some movement on trade deals over the weekend, but despite the comment that over 50 countries are seeking trade talks, the administration’s message was that, while it will listen, any deal will take time and the tariffs are coming. This has shifted the market’s thinking from tariffs as a trade negotiating tool to a trade war. We’ve heard from China that it will slap a retaliatory 34% tariff on U.S. goods starting April 10, and we have yet to hear a formal response from the European Union and others.
This has uncertainty and fear running rampant, and Trump’s Sunday comment that “sometimes you have to take medicine to fix something” did not help. And, in our view, Treasury Secretary Bessent’s comment that Americans looking to retire aren’t concerned about day-to-day markets is tone-deaf when it comes to the current market turmoil.
That same uncertainty led to market circuit breakers being triggered in other markets overnight as well as growing calls for both a recession and rate cuts in the U.S. We’re also seeing another round of S&P 500 price target cuts, with Evercore ISI cutting its to 5,600. Even JPMorgan’s JPM Jamie Dimon came out early on Monday morning saying Trump’s tariffs are likely to boost prices on domestic and imported goods, bringing a headwind to an already slowing economy. All of this is coming together to push the Fear and Greed Index to a reading "Extreme Fear." How extreme is that fear? On the index’s scale of 0 ("Extreme Fear") to 100 ("Extreme Greed"), it’s currently at a 4.
We are firmly in shoot first, ask questions later territory.
That anxiety, recession concerns and the potential demand destruction are fueling the drop in oil, copper and other commodities. It’s also another factor that adds to the growing likelihood that corporate guidance for the June quarter and 2H 2025 will be reset when the March quarter earnings season kicks into gear over the next week to 10 days. Let’s remember too our comment above about still waiting for the European Union to announce any retaliatory tariffs.
All that means we will continue to sit on the sidelines and build our shopping list for when the time is right. Part of that list will be for existing positions, but as we discussed last week, we are on the hunt for others as well. If you’re thinking of Warren Buffett’s quote about being “fearful when others are greedy and to be greedy only when others are fearful,” we are as well.
We’re also reflecting on a quote from Buffett’s long-time partner Charlie Munger, who said, "When everybody goes insane, staying sane is your competitive advantage."
In Friday’s Weekly Roundup, we shared that, for now, the prudent move is to let the Portfolio’s defensive positioning do its job given the near-term hurdles we see ahead. In that Roundup, we commented that “the key for us to start deploying capital will be having a greater degree of confidence that the worst of tariff-related pain is behind us.”
We’re not there yet, and we may not be in the next day or two. As new data and information become available and companies start to report their quarterly results, which should bring another layer of tariff-related insight, we will revisit existing Portfolio holdings as needed.
As we see how things develop in Washington, D.C., we will continue to closely watch the market’s technical setup, including signals and metrics, including market oscillators and the Volatility Index, that it is extremely oversold. In Monday's technical look at the S&P 500, we discuss why that means we’ll be watching the S&P 500 and its 200-week moving average which clocks in around 4,674.
Despite last week’s market pain, it did not hit those levels, but it could early this week. That could lead to some tempting nibbling as dip buyers re-enter the market, but until we have greater clarity on those hurdles discussed above, odds are we’re not going to see a quick rebound in the market.
