🍔Bold Predictions on Where Stocks Will Bottom

How much lower can we go?

A whirlwind week

Let's recap: Last week Trump announced higher global tariffs than anyone could have possibly expected. Markets instantly jumped to the conclusion that trade ties would be cut, leading to job losses and halting economic growth. This sparked a rapid selloff in the stock market as investors priced in 62% odds of a recession — up from 20% at the start of the year:

Note that this was all happening as economic data was still positive, as we wrote last week. It's the anticipation of recession that the market is worried about. Hence why jobs are still growing (with a blowout non-farm payrolls figure last Fri) that was almost completely ignored. Powell, too, sounded hawkish but he is basing his views on lagging economic and inflation data.

Recession forecasts can sometimes be self-fulfilling. For example if credit spreads (which affect corporate borrowing rates) widen like they have over the past week, corporates struggle to refinance loans or source new financing. This leads to lower investment and job cuts, ironically initiating the downward cycle in the economy. We may already be in a recession but the data won’t show it until a few months from now.

Credit risk is spiking

Trade tensions heightened through the week but we got some reprieve on Weds. Trump “blinked” ostensibly because 70+ countries came to the negotiating table, but also because it was causing stress in the bond markets. Therefore, Trump announced a 90-day delay in reciprocal tariffs, leaving only the baseline 10% tariff in place. This is in line with our thinking that tariffs were not meant to be permanent. SPX rallied over 10% on this news, the largest short squeeze in history, with over 95% of all issues on the NYSE positive (a massive breadth thrust).

The EU has said they are ready for negotiations, which is a big deal since they were expected to retaliate and play hardball. However, not all tariffs were removed, notably those placed on China (which are now at 145%). So we still have the issue of ongoing policy uncertainty…

What’s the next phase?

The rest of this article is paywalled. Inside, you can read about:

• The next phase of the trade war

• Why we remain optimistic

• Bond market crashing

• What this means for stocks