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"Liberation Day" Tariffs Trigger Market Turmoil: What's Next?

“Liberation Day” Tariffs Rock Equity Markets

The market’s troubles began in late February when China’s DeepSeek shook Wall Street’s hottest sector – artificial intelligence. Since then, things have hit a fever pitch as the Trump administration’s tariff policy on the April 2nd “Liberation Day” proved much more extreme than Wall Street investors anticipated. The S&P 500 Index is now down more than 17% since it topped on February 19th, marking the biggest drawdowns since 2022 and also one of the worst starts to a year in history.

Tucker Carlson Interviews US Treasury Secretary Scott Bessent

Many CEOs, Wall Street investors, and business owners have complained that the Trump Administration has been unclear about policy. The overall tariff strategy for the future roadmap remains somewhat muddled. The main confusion for investors lies in whether or not the tariff strategy is meant to be used as a negotiating tool or a means of revenue generation. That question remains to be answered fully and articulately. However, in an interview with right-wing podcaster Tucker Carlson, Treasury Secretary Scott Bessent provided the “why” behind the tariff plan.

In a long and wide-ranging interview, Bessent laid out core issues with the current economy. The top 10% of Americans own 88% of equities, the next 12% own only 12% of the stock market, and the bottom 50% are in debt. Meanwhile, during the summer of 2024, a record number of Americans went on European vacations, and a record number of Americans were forced to use food banks. Essentially, Bessent and his team are attempting to help the bottom 50% of Americans get on their feet. While it remains to be seen whether the current White House strategy will work, such an endeavor is no walk in the park and requires a 180-degree policy turn. Hence, the brutal price action last week.

Why a Mean-Reversion Bounce May Be on the Horizon

Outside of legendary investor Warren Buffett, very few investors (including me) were able to completely sidestep the carnage. However, if there is one lesson I have learned in my more than two decades of investing experience, it is that, ultimately, crisis equates to opportunity. Below are three signs the market may be due for a sizable mean-reversion bounce in the next month:

1.       Back-to-Back Drops of 4%: Thursday and Friday, the S&P 500 fell more than 4% for two consecutive sessions. Shockingly, the only time the S&P has fallen by 4% or more for three straight days was during the Great Depression!

2.       1st 90/90 day: Friday, stocks suffered their first 90/90 downside day. A 90/90 day occurs when 90% of stocks fall, and 90% of volume is concentrated in down stocks.  

3.       Sentiment Reaches Rare Territory: Charlie Bilello (@charliebilello) of Creative Planning made observed that the AAII sentiment poll saw its third-highest bearish reading ever. The other two instances occurred in October 1990 and March 2009, with each instance marking the bear market bottom.

Zacks Investment Research
Image Source: Charlie Bilello, Creative Planning

Putting it All Together

Volatility is likely to persist as investors try to make sense of the ever-changing tariff policy and the global consequences of it. Investors will need to see a return of demand to gain more confidence about a potential sustained uptrend. However, there are signs of extreme fear and panic, signaling that a mean reversion bounce may occur in the next few weeks. The most punished areas of the market are “The Magnificent 7” stocks like Tesla ((TSLA - Free Report) ) and Nvidia ((NVDA - Free Report) ), along with the small-cap Russell 2000 Index ETF ((IWM - Free Report) ). Watch those names for clues. Finally, the Fed is having an unexpected meeting at 11:30 am EST today. Could emergency measures be the topic?


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