Market May Become Oversold Friday, But Uncertainty and Anxiety Aren't Going Away
With China retaliating against Trump's tariffs, the March Employment Report, and Powell on deck, here's how we see things playing out.
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Leading up to Friday morning’s March Employment Report, we are seeing more response to President Trump’s “reciprocal” tariffs announced Wednesday afternoon. Building on Canada’s set of countermeasures announced late Thursday, on Friday morning China announced a 34% tariff will be imposed on all goods originating from the U.S. starting April 10. Meanwhile, French Finance Minister Eric Lombard said the European Union is discussing a broad palette of responses to U.S. tariffs that could include measures hitting large American tech firms. That lines up with prior reports the EU would look to target the U.S. service sector, which is the primary driver of U.S. GDP.
These moves are bringing another round of pressure on the stock market, which as of Thursday night’s market close was not oversold. Coming into Friday morning, the relative strength index (RSI) for the S&P 500 was at 31.92 while the Nasdaq Composite's was just below 31.0. We could see the market become oversold Friday, but with the March Employment Report out at 8:30 a.m. ET and Fed Chair Powell speaking around 11:30 a.m. ET, we could also see it whipsaw around.
On Thursday we gamed out the potential for the March Employment Report to miss the 135,000 non-farm payroll consensus and shared why Powell could disappoint the market with more hawkish than expected comments Friday.
Could the Market Attempt to Rebound Today?
If the combination of Friday morning’s retaliatory tariff headlines and potentially sobering comments from Powell push the market’s RSI levels to oversold, while market oscillators point to it being deeply oversold, and we see the Volatility Index (VIX) move sharply higher compared to Thursday night’s close at 30.02, we could see the market attempt a rebound. However, barring any new developments that indicate Trump walking back reciprocal tariffs, we would not be surprised to see that attempt fade as we head toward Friday's closing bell.
As we have seen time and time again, a lot can happen over the weekend. Given the potential for other retaliatory tariffs against the U.S. to be announced, and for President Trump to escalate things further, as he’s indicated he could, we doubt traders will want to have sizable exposure to the market heading into Monday morning. We also think the probability of companies issuing negative earnings pre-announcements starting next week following this week’s tariff developments is now much higher than it was at the start of this week. It will also have investors bracing for comments from JPMorgan JPM when it reports its quarterly results a week from Friday.
This all points to anxiety levels remaining elevated over the next several days and suggests the market isn’t likely to be on firm footing in the very near term. We’ll reiterate that while its tempting to put cash to work in an oversold market, we will want to see some of these other shoes land before making any meaningful moves with the TheStreet Pro Portfolio so as not to get head faked. As we discussed in Thursday’s video, we’ll look to bring some companies with inelastic business models into the Bullpen, so we have some options depending on how things play out in the coming days.
