“Stocks Trigger '100% Accurate' Bullish Signal After 3-Day Rally” (Investopedia)
“Veteran fund manager who correctly forecast stocks' drop and pop sends blunt 6-word message on what’s next” (TheStreet)
Time Is Running Out for the Stock Market. Trump’s Next Move Is Crucial. (Barron’s)
These are just a few headlines over the last week that are very common in volatile markets. With uncertainty comes a hyper-focus on short-term thinking, to try and explain the present and predict the future.
This is an ideal environment if you’re a trader, but if you’re not a trader this is not the time to try and become one.
Attempting to time volatile markets can destroy long term returns. Especially when you’re competing against computers that can execute trades in fractions of a second.
Investors are better served by maintaining a long-term perspective, and committing to a plan of action regardless of what the market does over the short term.
Here’s my takeaways from the week.
Trump shifts his messaging
Last week’s rally was largely driven by a shift in messaging from the White House, acknowledging that the high tariffs on China are unsustainable and that trade deals are in the works.
It could be all the comparisons in the media of the current economic environment to the Great Depression, or Trump’s plummeting poll numbers. More likely, it’s the message big business delivered to Trump on the effect of his trade policies. (Read)
The messaging shift seems to be an acknowledgement that the economic damage from these tariffs has been significant. As this damage becomes more clear over the next month, I would expect to see some more volatility shocks.
But it’s also clear these high tariffs are temporary, and most likely we’ll see a more reasonable 10% baseline tariff remain on certain industries/countries.
Apple shows what China has to lose
In an attempt to navigate higher tariffs on China over the long term, Apple is shifting production of iPhones to India. (Read)
While China is talking tough at the moment, this represents the biggest risk to their economy.
The longer these high tariffs remain in place, the more incentive companies have to shift production elsewhere. And once a company like Apple moves production out of China, it’s unlikely to move it back.
This is the biggest incentive in the world for them to come to the table and negotiate.
Most manufacturing jobs not coming back
Manufacturing jobs were in long-term decline way before NAFTA came into effect in the early 1990s. The idea that we’re somehow going to bring back the manufacturing of shirts and shoes, as Commerce Secretary Lutnick suggested, is laughable.
The sidelining of some of the administration’s hardliners on trade in favor of Treasury Secretary Scott Bessent is encouraging.
Bessent made clear in a recent interview that the administration will be focused on jobs of the future, and that it’s high value manufacturing they want to bring back. He also indicated high tariffs could go away for any country that reaches a trade agreement “in principle”.
As tired as I am of all the whiplash around tariffs, I’m also hopeful we could see meaningful progress in the coming weeks.
Market technicals remain constructive
With all the volatility over the last several weeks, it’s hard to believe the S&P 500 is only down 6.4% YTD.
The market found support at the volume-weighted average price anchored to the bear market low in October 2022 (blue line on chart). This has been an area of support several times over the last few years, and the fact that the market held at that level is bullish.
Additionally, as the index made new lows for the year, its Advance/Decline line stabilized, indicating that there’s been buying under the surface.
Short-term, we’re near resistance at the volume-weighted average price anchored to the market’s high in February.
Sentiment remains bearish, and I expect to see some continued consolidation as the market digests the latest round of economic news. In the meantime, we’ll remain focused on what we do best - finding companies that are thriving despite the chaos.
