A Brutal Week Ends in a Fog of Uncertainty
The market was expecting a battle over tariffs. What it got was something much different and far more damaging.
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Some of the worst action in the history of the stock market was triggered by a chart prepared by Secretary of Commerce Howard Lutnick. The chart inaccurately calculated tariff rates and set forth retaliatory tariffs far higher than anyone expected.
The damage became even more severe when Lutnick and trade advisor Peter Navarro stated that these tariffs were not negotiable, although Treasury Secretary Scott Bessent indicated otherwise. On Friday morning, China retaliated by adding a 34% tariff on U.S. goods.
Panic ensued, with the S&P 500 dropping more than 10% in two days and the Russell 2000 suffering back-to-back losses of more than 4% for the fifth time in history. Overall volume hit an all-time record on Friday as over 3,200 stocks hit new 12-month lows on breadth of nearly 8 to 1 negative.
The primary fear now is that these aggressive tariffs will trigger a recession. Money flowed into safe-haven bonds, causing interest rates to drop. Fed Chair Jerome Powell stated that the Fed is still watching the data and not ready to take action, but the potential for Fed rate cuts has increased sharply.
One bright spot was that Trump posted that he is negotiating with Vietnam for the removal of all tariffs. If these negotiations spread to other countries and tariffs are reduced, that will help, but a tremendous amount of damage has been done, and there is more uncertainty than ever about how things will develop.
The good news is that some exceptional opportunities are developing. Many stocks that have little exposure to tariffs are being pounded along with big-cap technology. The bad news is that the bears have significant momentum, and there is no way to know how low things will go.
The market was expecting a battle over tariffs, which would have likely been resolved fairly fast. What it got instead was an effort to restructure the entire global economy and drive increased manufacturing in the U.S. Change of that magnitude cannot occur without significant pain.
Have a great weekend. I’ll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
