Tariffs Round 2? April 2.0? I don't think so.
Happy Sunday everyone. I hope you’re all having a great weekend.
What started as a relatively quiet week ended up being arguably the most eventful since April. On Friday we got the first notorious Trump-China post in what feels like forever, this time placing 100% tariffs on all Chinese imports (on top of the current 30%) and even tightening export controls on key software. This comes in response to China’s tightened export controls on rare earth metals, something that could be viewed as a potential escalation. Trump’s increased tariffs go into effect November 1st. On top of the tariffs, he said there is “no point” in having the anticipated meeting with Xi at the end of this month.
This sent the S&P500 -2.7%, the NASDAQ -3.5%, and the Dow -1.9%, all worsts since April. The last few months have been so calm it seemed like investors forgot that we were still without an official trade deal with China. Outside of the indices, crypto got destroyed. There were a record $19B in liquidations and to put that into perspective, let’s look at previous major liquidations that took place.
COVID crash: $1.2B
FTX crash: $1.6B
Friday, 10/10: $19.16B
The amount of liquidations that took place in crypto on Friday was almost 20x larger than the COVID and FTX crash. It would not surprise me if this marks a meaningful low.
Now, investors have to weigh whether or not this is just Trump performing his “art of the deal” and pushing to get a deal done, or if this is the start of a true trade war and he’s going to dig his heels in. After the close on Friday, Trump said he “might still have the meeting with Xi” and that it has not yet been officially cancelled. I’m assuming he took a look at the indices and had flashbacks to April. If I had to guess, this will all be resolved in the next few weeks and we’ll get a post on Truth that reads like this: “I spoke with Xi, a great man, and had a big beautiful call! We discussed how we can create fair trade between the U.S. and China. I am looking forward to our meeting at the end of the month. Thank you for your attention to this matter!”
In my view, this is textbook Trump. Trump’s “Art of the Deal” approach revolves around projecting confidence and controlling the narrative. He starts negotiations with major, often extreme asks to anchor the conversation in his favor and later makes concessions to seem generous. By asking for more than he expects he creates room to negotiate while maintaining the “upper hand.” We saw this in April when he announced tariffs exceeding 100% on China, only to later scale them back significantly. Although the final tariffs remained high, they were much lower than his initial threat. This is a classic Trump move that allowed him to appear tough and still frame the outcome as a victory. In no way do I expect this to be a repeat of April.
Friday was rough, but let’s zoom out and take a look at the indices shall we?
NASDAQ:
S&P500:
DJIA:
Russell 2000:
One key point we all need to take from these charts is to zoom out. The rally since the April bottom has been historic. From April 7th to October 10th (132 trading days) the NASDAQ rallied 52.4%. In that timeframe, we’ve seen monstrous moves from many names including:
OKLO +842%
RGTI +600%
HOOD +400%
AMD +216%
COIN +213%
PLTR +184%
NVDA +124%
TSLA +121%
Not to mention, YTD performance from the indices is still very strong.
NASDAQ: +15.5%
S&P500: 11.7%
DIA: +7.3%
IWM: 7.5%
Was Friday as an individual day brutal? Yes. We essentially removed a months worth of gains in just one day. But, in the big picture, it was a well needed washout to remove some froth and excess leverage across the board. If you want to have the opportunity to participate in one of the biggest bull runs in history, we have to accept that these days are inevitable. Volatility and risk is the cost of participating and in my opinion that’s a very fair trade. If I had to bet, this passes fairly quickly and we get a de-escalation within the next month.
Now, to some other “secondary” indicators:
NAMO (NASDAQ Mclellan Oscillator)
NYMO (NYSE McClellan Oscillator):
Fear and Greed:
NASI (NASDAQ McLellan Summation Index)
There has already been quite the deleveraging across the board despite the selling being contained to just one day. Could there be further downside? Of course, but in no way does this look to be “the” big picture top of this AI trade.