Market Commentary

The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.

Pam Ewing.

It was all a bad dream. Markets rocketed up on the news from President Trump that the tariffs would be paused for 90 days, except for China. All the computers bought, all the shorts bought, all the nimble actors bought. It was a bonkers upside rally. Capital flow was incredibly heavy at 212%. Yields climbed enormously across the curve. Priced Fed cuts are now 79 bips for the year, a 23 bip change from yesterday!

We are not going over the economic cliff. Will we go over it in 90 days? Who knows? The market doesn’t worry about that right now. The market is attempting to erase all the damage since Liberation Day. Is that warranted?

The argument for yes is being embraced by stocks right now. The view is that the tariffs won’t ever really go into effect, except for China, and given the health of the US economy, we should be able to sustain positive but lower GDP growth.

The argument for no is that the red light/green light game of economic policy by the President has materially cooled economic animal spirits. US GDP will slow and the slowing will force US equity revaluation. A recession is still quite likely, which the market has essentially taken off the table today.

We haven’t had a 1-day S&P rally like today since March of 2020, during the COVID volatility and also October of 2008, during the Global Financial Crisis volatility.

The longs are partying, and with good reason. Understand a few things before you put a lampshade on your head.

• GFC and COVID were *traumatic* events for the economy and the markets. Tariff talk has just caused *similar* trauma.
• Big rallies like this are *relief* rallies. The relief may be temporary, not permanent. For the GFC, pain continued for 5 more months. For COVID, that was the equity bottom.
• For both those events, policy *solutions* were enormous. Global Bank and Governmental coordination was part of the answer, and market participants saw it.
• For the tariff situation, what’s the solution? Not putting the tariffs in place? It sounds nice, but is that all it takes to undo the damage?

Are valuations proper for the no-tariffs-except-on-China future?

Are valuations proper for the recession-is-coming future?

I think the answer for both questions is no. I wonder what the market will conclude once the mother of all short squeezes finishes.

See you tomorrow.

-Mike

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