VIDEO: Why the Market Is Likely Setting Up for a Retest of March Lows

In today’s Daily Rundown, we unpack Friday's market pullback that stems from escalating tariff concerns and the market waking up to the increasing likelihood the Fed isn’t going to deliver two rate cuts this year.

Chris discusses where we could see the S&P 500 go in the coming days depending on several developments unfold. As part of that discussion, Chris also explains why we’re likely to see March inflation data move further in the wrong direction and lists the data we’ll be watching for that next week. 

He also touches on the market’s reaction to Thursday’s Dutch Bros BROS Investor Day and share how comments from Lululemon LULU reaffirm our decision to exit Mastercard MA position.  

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. We are closing out the last full week of trading for March, bringing in almost an end, we could say, to what has been a challenging quarter for the markets and for the portfolio as well. As you've probably already seen today, it's another painful day in the market.

And, yes, there is the ramped anxiety over Trump tariffs and, as we've discussed, the potential response to not just the planned US reciprocal tariffs that are set to be unveiled next week but also the more recently introduced ones, including the ones on auto and auto parts that were announced yesterday. We're already seeing Canada and the EU kind of sabre rattle, getting their backs up in response. Depending on what we see in the coming days, we think that there is the risk of further tariff escalation.

President Trump has already indicated that there will be more tariffs ahead if certain countries kind of collude against the US, as it relates to tariffs. So this is going to be something we're going to have to continue to watch and real-time assess what the potential impacts are. But the market is also realizing that the Fed isn't likely to deliver two rate cuts this year, essentially saying that the updated set of projections that they shared very recently are already out-of-date.

Now, what's what's happening here, yeah, the market is kind of digesting what it's learned in the February PCE data that was hotter than expected, especially at the core level. But, remember, from our perspective, that data, while hotter than expected, is somewhat rear-facing. However, when we take it and then we add on top of that the inflation comments that we saw on Monday in the Flash March PMI data, it tells us that, more likely than not, the March inflation data is going to continue to move in the wrong direction, relative to what the Fed will need to see to deliver rate cuts.

We've already started to see one or two Fed heads start to dial back their expectations. We talked about one of them earlier in the week. That was Atlanta Fed President Raphael Bostic. And I suspect that on the heels of today's February data, we're likely to see a few more folks kind of join that camp, at least with incrementally hawkish comments.

Now we will start to get some of that March inflation-facing data next week. And if we do get it, whether it's in the ISM Manufacturing or Services PMIs or some of the wage data that we get next week, I think the market is going to increasingly come around to our view that the odds of the Fed delivering two rate cuts is extremely low next year. Possibly, we could get one, but we're going to have to see what all of this data and the impact of tariffs does on the inflation front.

So putting all of that together, we can see the renewed pressure that has kind of unfolded in the market today. But as we discussed in some of our earlier comments today, let's remember that the S&P 500 has rallied off its lows, and it has rejected support-- or sorry-- it has rejected the 200-day moving average. But, remember, too, that when the market was rallying off those lows, we did say that, from a technical perspective, we would want to see it retest the lows, put in that bottom, and then it would be prepared possibly to move higher on a sustained basis.

So this is all kind of part of the unfolding plan. But we know what the catalysts are that I just described that are really pressuring the market, so we'll have to see kind of what happens. But from a portfolio perspective, over the last two days, as you've seen, we've bolstered our cash position, and clearly the inverse ETFs that we have in the portfolio are doing their job.

Now when we look at the market, you know that early March low was in around 5,500 on the S&P 500. That's the level we'll be watching. But also from another technical vantage point, when we look at the relative strength index levels, or the RSI, for the S&P 500, around 38, 39, and for the NASDAQ composite around 37, 37.5.

Neither one is below 30. That tells us that the market is nowhere near oversold yet. We may get there. We may not.

I think that what happens over the next several days, what develops over the weekend, what we learn early next week leading up to April 2nd, President Trump's Liberation Day and the day set for those reciprocal tariffs, I think all of that is going to determine whether or not the market becomes oversold. So we're going to have to be very vigilant in what we're doing. Also, next week, remember we will have more economic data that could potentially spook the market, depending on how it comes in.

And if we start to get any negative March quarter earnings preannouncements, that could be another item that weighs on the market. So we're going to have a lot to digest. And, you know, remember, too-- I'm kind of laying out the time frame from the weekend to April 2nd-- but let's remember, too, that later that week we could very well get the response from other countries about the cumulative effect of announced Trump tariffs.

So there's going to be a lot going on next week. I think that we're going to have to be vigilant day to day. And I suspect the market is likely to trade once again on the latest headlines of the day.

But we're going to continue to do what we've been doing, playing, as we like to say, chess, not checkers, trying to stay two to three steps ahead of things, thinking long-term. I will also say that on the negative earnings pre-announcements, remember, we heard from Lululemon last night that the consumer is definitely slowing their spending, dialing back. From my perspective, that really reaffirms our decision to close out the portfolio's position in Mastercard shares.

And I will share this, as we get ready for a couple of things. If you haven't read our comments yet about Dutch Bros' Investor Day yesterday, you will want to do that. The nutshell version is that the story is very much intact. The company did a very good job laying out its multiyear growth plan.

They also said some things about the number of shops that they opened up quarter to date, very nice. They also gave some very favorable same store sales comments, up 4.6%, so far quarter to date. So those are all very good. So the question is, why are the shares down.

And my thinking on it is this. They did have their investor day yesterday, but they did not raise their guidance. As I explain in the Alert, not surprising, given kind of what we're seeing. I would say that I think that Dutch Bros is kind of one of those under-promise, outperform type of stocks. We like those.

It can be frustrating from time to time. But when we kind of piece together what they did say, it tells us that the story, both near-term and potentially longer-term, are very much tracking to where it should be. Remember, one of the reasons we liked Dutch Bros is because of where it was with its stage of geographic expansion and the expected acceleration. They really laid that out. This is a playbook that has been successful time and time again with restaurant stocks, and we have every reason to believe that that is going to be the case here.

We've got much more again in the Alert, including where we might contemplate picking up more shares and considering a revision to the current 2 ratings, so you will want to check that out. Coming up today, we are going to want to see where CoreWeave trades. They priced the IPO last night around $40 in a smaller-scale offering. But as we talked about in yesterday's video, I think that is the right thing to do, in order for investment banks to help open up the IPO window.

But, again, let's see how it trades. We know what the price is. Now we have to gauge the post-transaction performance.

And one last thing to say, hey, it is the last Friday of the month. What does that mean? It means that we will be coming your way later today with the Monthly Roundup. Yes, we'll be recapping and looking into each and every of the 28 positions that we have in the portfolio.

Trust me. You won't want to miss it. So I'll just say, let me get back to that and be sure to have a great weekend. And we'll see you back here on Monday, when we go through our game plan for the week.

At the time of publication, TheStreet Pro Portfolio was long BROS.