mattee2264

Pretty unconscionable that Trump once again told everyone to buy stocks just days before giving China a 90 day pause.

I don't think large moves in either direction necessarily indicate inefficiency. Rather they reflect massive amounts of policy uncertainty created by Trump's trade policy and therefore the probabilities will change depending on the news flow or rather Trump's tweets and policy statements. Liberation Day there was a non-zero chance that we'd see tariff levels last seen during the Great Depression so markets priced in a certain recession. Then it turned out that everything was up for negotiation and we got the pause and the only retaliation came from China indicating that the trade war was likely to just be with China similar to 2018 and that greatly reduced the probability of a recession and therefore markets recovered to a large extent. Of course there is also some momentum at play whereby selling begets selling and buying begets buying and also deleveraging and re-leveraging and these all exaggerate market moves. But the underlying moves are rational.

Compared to Graham's day a far greater proportion of money invested is by institutions rather than by retail investors putting money in individual stocks with a lot of it passively invested. Of course since COVID there has been a lot more day trading and speculation by retail investors but it isn't going to be a major determinant of stock prices outside of meme type stocks like Gamestop. Generally markets are a lot more efficient than in Graham's day. Any mispricing will most likely relate to company prospects but this is identifiable only with the benefit of hindsight. A lot of bears are quite suspicious of the rally noting that we are back to where we were before Liberation Day. But you can argue the market level is quite reasonable if you assume that there will be some combination of lower rates, lower taxes, lower tariffs (following trade deals) and the AI story is intact or gets even better. You can argue this is optimistic but generally looking at the broad sweep of market history optimism about the future is warranted and most of the anticipated crashes/recessions never end up happening. There are obviously exceptions to this rule such as dot com bubble and Great Financial Crisis. But these are comparatively rare and any benefit someone with a bearish bias gained from avoiding major losses during these events will have been far outweighed by all the gains they missed out on by being overly conservatively positioned the rest of the time.

You could be right Red Lion. Rate cuts could be another thing that could get markets excited especially if the economic data worsens but corporate earnings (and especially Mag7 earnings hold up).

Well we are back to where we were before Liberation day. And before then most of the correction was Big Tech related due to concerns about capex overspend. Big Tech earnings were pretty impressive in Q1 2025. The AI trade seems to be back on and I suspect that similar to COVID investors will seek safety in Big Tech on the basis that either their business models are less affected by tariffs (cloud computing long term contracts and digital advertising) or they will benefit from exemptions (e.g. Apple). Also it does look as if the trade war will just be with China as other nations haven't retaliated and have been open to trade talks and even China are trying to de-escalate. So markets are back to the idea that tariffs are just a negotiating tool and the reciprocal tariffs won't get reintroduced and the universal 10% tariff won't stick (or won't stick for long). The risk is that Trump loses credibility when the trade deals don't materialize and after the pause tries to continue with the universal tariffs along with higher sectoral tariffs. That would probably trigger another sell off. And another pause and teasing trade deals is unlikely to be as effective as stemming the next sell off especially if the negative impact of all the tariff uncertainty starts to seep into economic data and corporate earnings.

Good point about COVID and the fiscal and monetary stimulus. I think another factor during COVID was the market quickly figured out that the market leaders i.e. Big Tech were massive beneficiaries as it accelerated adoption of e-commerce, cloud etc and handicapped their offline competitors. Hard to see who benefits from these tariffs. Even if tariffs force some import substitution US manufacturing has little presence in major stock market indices and there is so little certainty that I cannot see much switching let alone US manufacturers being motivated to invest to increase their capacity. Of course there might be some macro offsets such as lower oil prices and lower interest rates. And don't forget the US government is still running multi-trillion dollar deficits which will continue to support the economy. There is also likely to be labour hoarding because a lot of companies laid off staff during COVID then later regretted it. And without a large rise in unemployment it is difficult for a full blown recession to arrive. And if progress in AI is encouraging enough investors may just look through to a few years down the line when they'll expect another golden goose for tech companies and across the board productivity improvements etc. Also the tariffs are mostly a negotiating tactic argument is being partly vindicated. It is clear that tariffs are flexible and can be paused or increased or decreased at will. Trump also responds to pressure and has the ability to U-turn and come up with a rationalization for it. So we will probably land with none of the reciprocal tariff increases actually being imposed and most countries will get the 10% rate which still represents a significant increase but for the most part will just get absorbed/passed on to consumers. And there is always the possibility that Trump will be forced into a hard policy reversal either because the balance of power changes and his emergency powers get stripped from him or the US economy takes a dive and he gets convinced that the tariff policy isn't working.

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I think to some extent the market is front-running trade deals and interest rates cuts. And also figuring that if things get really bad then Trump will pivot or will be forced to pivot. Also Big Tech are a big driver of the markets and they sold off significantly over the last few months. They stand to benefit from lower interest rates (long duration) and their earnings are likely to hold up pretty well during a slowdown/recession as their products/services are essential to consumers and businesses and there is also the AI story which encourages investors to look through any near term weakness. They also have strong lobbying power so will benefit from various exceptions/exemptions.

Yeah weaker dollar is probably part of the plan as it makes US exports more price competitive. Of course also makes imports more expensive so adds to inflationary pressures.

Waller of the Fed has quite a nice scenario analysis. https://www.federalreserve.gov/newsevents/speech/waller20250414a.htm

As I understand China have a massive head start in rare earths because while America was sleeping they were rapidly moving up the development chain. So it is actually hilarious that the MAGA dream is to onshore low cost low skill manufacturing and plays right into China's hands. The whole problem is that right now no one has any incentive to make multi-year (or more like multi-decade) investments in industrial capacity when there is zero clarity over what level of protection will be provided by the US government or how long it will last for. Trump meanwhile tries to justify pauses as required to give American industry more time to build up capacity/capabilities to replace foreign imports.

I think the near term outlook for markets is pretty good. There seems to be a Trump put and we are back to the idea that tariffs are just a negotiating tool and won't stick. Waller of the Fed is already talking about how tariff inflation will be transitory and he expects rate cuts in the back half of the year. Markets will love that. But I think there is a false sense of security. Trump hasn't abandoned tariffs. The 10%/20% universal rates look more like a floor than a ceiling and even those rates are enough to do quite a bit of damage to the global economy. Then there is all the uncertainty with all the pauses and exceptions and Trump and his advisors contradicting each other and there hasn't been a hard policy pivot. But one thing is certain. If there is going to be a recession or a severe slowdown it will catch markets by surprise.

Yeah this isn't a hard policy pivot. Even if that is where we land up it will be a bumpy ride to that point and not without a good amount of pain. All that we really know so far is the Great Depression tariff rates were a bluff and everything is up for negotiation and a lot of volatility because at any point Trump might announce more exceptions or pauses or change the rates. Even if you anchor of the 10% universal tariff (and 20% for China) that still represents a pretty big increase compared to the status quo and is enough to have a negative impact on economic growth and inflation. Then you have the other Trump policies such as zero immigration and spending cuts which will have a negative growth impact even if it is incredibly unlikely the headline targets will be achieved. And markets are only down 5-10% from election levels with most of the decline just unwinding the post-election euphoria based on the idea that Trump would be pro-business and deregulate and cut taxes etc. Maybe AI will save the day and the resulting productivity improvements and cost savings will overwhelm any negative growth and inflation impact from Trump's policies. And maybe we'll get a repeat of COVID with a flight to the safety of Big Tech (especially when it becomes evident that their lobbying power will get them a lot of exceptions) rather than a flight to cash. But even before the tariff increases Mag7 were showing some vulnerabilities and if history rhymes the productivity improvements from AI technology will take more than a few years to start to become evident in the wider economy.

Tariffs can be rescinded especially if this trade war does a lot of damage to the global economy over the next few years. Periodically it seems people need a real time economic lesson that despite the emotional appeal of protectionism it does a lot more harm than good. Oh and the latest from Lutnick is that while semiconductors etc are exempted from the reciprocal tariffs they will be subject to their own special tariff increases which will come into effect in a month or so. Seems to me as if Trump and his team haven't given up on tariffs but are going to phase them in haphazardly and change the rules all the time so no one is able to keep track and there is always a positive headline with the devil buried in the detail and maximum flexibility so any adverse changes never get fully priced in with the markets able to hope for a pivot. Next we'll have tariff "forward guidance" and tariff setting monthly meetings. I don't see how any businesses can operate in this kind of crazy environment. Businesses are necessarily short term oriented because they have shareholders who care about quarterly results and how the hell are you supposed to plan when you don't know what your prices are going to be over the next few years and all your supplier relationships are being messed up as you have to factor in differential tariff rates. And what are you supposed to do? Take advantage of the pause to front-run potential increases and stockpile and pay the 10%? Or front-wait in the hope that zero-for-zero deals get struck over the 90 days? He should have simply just implemented 10% tariffs across the board (perhaps 20% for China) and then launched proper trade talks over a course of months. At least it would have allowed businesses to anchor on the 10% rate and then considered the possibility of modest increases or decreases depending on the outcome of trade talks. I'm not worried about markets. They will do what they did before Liberation day and assume Trump is bluffing and look through to an expected total capitulation. But I do not think businesses will be so blasé and they will look to try to reduce their reliance on USA and defensively stockpile which if enough companies try to do will mess up supply chains or they will cut investment and employment. And various other responses which while individually rational will collectively put a major dent on global growth and could increase short term inflationary pressures.

In fairness, I do think that the "reciprocal" tariffs were always intended as a bluff to try to scare trading partners in advance of the negotiations. The pattern is similar to the dress rehearsal with Canada and Mexico with outlandish tariff increase announcements then followed a few days later by a pause. Incidentally the Canada and Mexico tariff increases were announced in February and even after the pause there is still very little clarity what is happening with those two countries. And those are neighbouring countries! And it was supposedly because of a fairly limited disagreement over border enforcement. But I imagine they would have ideally wanted to make trading partners feel a bit more heat and provoke more of them into retaliating before granting pauses to those who didn't escalate and picked up the phone and "begged".

Trump said in interviews he walked things back down because everyone was getting a little scared and also referenced the Dimon interview which spooked him with talk of a potential recession and fixing the bond market problem that he caused. Right before he pivoted he told everyone to buy stocks and would have known full well the market impact from his pivot. In other words despite what he and his advisors may pretend, they are reactive to markets and markets will therefore to a large degree constrain trade policy. It is the same deal with the Fed. All the "forward guidance" wouldn't be at all necessary if they weren't worried about the market reactions to their policy changes. So despite supposedly just having a dual mandate in relation to inflation and unemployment they are excessively concerned with soothing financial markets and stabilizing them as far as possible. There will be a lot of volatility because Trump can through a tweet or an announcement move markets by granting exceptions, extending pauses, making claims about the progress of negotiations and teasing future policy shifts. So I expect this will be the new parlour game in markets. Agree entirely that from an investing POV the rational way to play this is to have some dry powder and scoop up babies thrown out with the bathwater as a result of forced and panic selling. But it is fun to speculate anyway on how this will all go down. Especially as this is a political thread. But I doubt there will be all that much more clarity after 90 days. It takes a lot longer than that to engage in proper trade negotiations. All you might get over that period is some cheap (or not so cheap) concessions designed to placate Trump. And would you trust Trump to stick to what is agreed or make any kind of long term commitment? What we really need is a hard policy pivot. But so long as tariffs remain on the policy agenda it is hard to imagine that happening.

The whole trade war is a joke. Reciprocal tariffs lasted about a New York minute before everyone except China got a 90 day pause. The China reciprocal tariffs were then altered to exclude everything that USA needs made in China i.e. chips, smartphones, PCs etc. Every country knows now they just have to sell off their US bonds to put Trump under pressure. What leverage does Trump have? Whenever he tried to put tariffs back on stock and bond markets will sell off. And everyone knows that will make him back down.

Mag7 should rally bigly on the latest "exceptions". Getting their money's worth for those inauguration tributes.

Trump is reported as saying "the bond market is doing good. It had a little moment but I solved that problem very quickly".

Financial markets are so fragile that they will severely constrain Trump's ability to push through his policy agenda even if his advisors and the rest of the US government is unable to do so. Stock market falling 20%, 30 year bond rising above 5% and Jamie Dimon warning about a recession was enough to get Trump to pause for 90 days. So markets know all they have to do is throw a tantrum every time Trump tries to implement tariff increases and he'll back down every time.

Yeah if 5% is the long bond rate that makes Trump and his team queusy and is likely to make stuff break seems a good idea to buy when it reaches that level and wait for the inevitable hard policy reversal and Fed (or rather Donald Trump) rate cuts.

I don't think what Trump is doing is even good for America. He doesn't understand Economics and when you have spent your entire career screwing over others it is not surprising that his instinct is telling him the rest of the world is screwing over USA. A shift away from free trade and acceleration of deglobalisation trends is not good for the global economy and it is not good for USA either.

It makes sense to me that the downturn hit a wall pretty quickly. It is pretty typical for markets to panic when there is a shock. On this occasion it was a policy shock. Markets did their usual thing and threw a tantrum and eventually Trump pivoted. They probably figure there will be a similar outcome with the China trade war. Many of the worst case scenarios have been taken off the table because it is clear that there are market constraints which are going to limit how far Trump will push his agenda. However the risk is there will be knock on effects from all the uncertainty and even the diluted 10% universal tariffs (with China probably getting 30-40% when the dust settles) is still enough to cause a global slowdown and once the economy slows it can develop momentum as bankruptcies and layoffs and spending cuts cause more damage. Inflation has eased a little (probably reflecting we are already in a slowdown) but there still isn't the same room to manoeuvre as there was in previous years. When you are running multi-trillion fiscal deficits (that will worsen in a downturn as automatic stabilizers kick in) there isn't much room for additional stimulus. While I imagine Trump will find a way to get rid of Powell and get interest rates down and resume QE it isn't a panacea.

Yeah that is the way I see it heading. Financial repression is far easier and will be made possible if Trump can get a puppet FED governor.

Yeah it amounts to a trade embargo. China will struggle to find buyers for their crap goods. USA will struggle to find equally cheap crap goods from other countries. Trade substitution takes time. Import substitution is mostly a fantasy. Eliminating the trade deficit with China is an impossibility. Having said that since the 1st trade war there has been a trend towards doing less trade with China and this trend will probably accelerate. We will probably land with tariffs that discourage trade with China while moderating the short term pain to the extent import substitution isn't possible or feasible. Still a negative though and doesn't reflect economic sense but rather animosity between the nations and national security concerns.