Totally Tarrified
By Crest Capital Advisors on April 14, 2025
Dow: 4.95% to 40,212.71
S&P 500: 5.70% to 5,363.36
Nasdaq: 7.29% to 16,724.46
Russell 2000: 1.82% to 1,857.90
Bitcoin: 84,075
10 Year Yield: 4.48%
Outperformers: Technology 9.67%, Industrials 6.53%, Communication Services 6.36%
Underperformers: Energy (0.39%), Real Estate (0.16%)
Despite the massive volatility (The VIX index or ‘fear gauge’, traded above 50 multiple times this week), major market indices were up for the week! This huge turnaround from what was looking like a debacle last Sunday night when index futures began trading was a welcome relief. The S&P 500 did manage to officially trade below bear market levels (-20%) below the index’s February all-time high intraday on Tuesday but did not close in bear territory (recall the Nasdaq hit the bear-market point last week). Then on Wednesday, the index traded through a 533-point range during the session on its way to a whopping 9.52% gain. More on this below.
Treasuries were sharply weaker with the curve steepening as the 10-year and 30-year Treasury yields both rose more than 40 basis points on the week. The dollar accelerated its recent slide, posting its worst week since November 2022; but Gold rose 6.9%, setting another all-time high and notching its best week since March 2020.
Overall as we noted above, It was a highly volatile week of trade developments that whipsawed the market. Investors exited last week still in a cloud of uncertainty and concern about the evolving tariff situation, and some tentative question about a possible implementation delay was countered by administration officials saying Trump would stay the course. However, there was a subtle shift in the narrative, with the White House stressing that dozens of countries had reached out looking to negotiate. Then on Wednesday, Trump abruptly announced a 90-day pause for reciprocal tariffs on countries that had not retaliated and had sought negotiated settlements. The market saw a massive rally on these developments.
At the same time, however, the White House raised the tariff rate on China to 125% (later clarified as 145%), citing that country’s retaliation and “lack of respect.” By Friday, China had also raised its tariffs on US imports to 125%, adding it would not retaliate further because US goods are no longer marketable in that country. Meanwhile, the EU announced its own 90-day pause on retaliatory efforts to give negotiations an opportunity to bear fruit.
There are still many moving parts in the trade/tariff narrative, and it seems as if we may only be near the end of the beginning. Trump’s willingness to take a slight off-ramp at a point of rising concern was seen as a positive, keeping the “Trump put” concept alive. Thoughts that Treasury Secretary Bessent’s influence may be rising while hardliners like Navarro may be moved aside also leans to the bullish side of the equation and increases the odds we can avoid the worse fears of a recession.
We wrote the following passage last week and fortunately, it turns out that President Trump did indeed turn back before it was too late.
<<In short, and we’re disappointed to have to write this, but “Liberation Day” looked a lot more like “Liquidation Day”. What remains to be seen is whether our primary trading partners (Canada, Europe, Mexico – NOT necessarily China) will negotiate a deal with President Trump that allows him to declare a win, make a positive economic impact, and subsequently reverse the tariff regime before irreversible economic damage is done and we find “Liberation Day” liberating our population from employment and inducing a true Washington created economic contraction. >>
That said, a lot of collateral damage was inflicted and there remains uncertainty around deals being completed in order to avert the draconian tariffs unveiled on “liquidation day”. Time will tell, but we expect markets to remain jittery and volatile between now and a final end to the tariff threats.
Tactical Update
As we entered the week, the average stock in the S&P 500 index was down more than -26% from its 52-week high, which is approaching a -2 standard deviation move. And after the open of trading this week, we exceeded these levels. This decline is on par with the 1987 crash, LTCM in 1998, the dot com bubble, the global Financial Crisis, and Covid. The number one market-related question is when should we start buying? History over the past 45 years would suggest we are in the zip code, but keep in mind there is no example from this period where the administration was attempting to reorganize world trade.
And for those of you that like to follow technical analysis, we find it notable the market declined almost exactly to the 50% retracement point of the current bull market period that began back in late 2022. (This week’s low was 4,835 in the S&P v. 4,820 as the exact 50% retracement level.) A 50% retracement is a significant data point in the study of technical analysis. For those that adhere to it, you’ll recognize that 50% retracements are often expected and normal occurrences within a broader, longer-term trend. It implies the bull market remains intact…as long as that 50% level holds.
Cold as Ice
Understandably, markets have been fixated on tariff news and the volatility has been intense as a result. Absent all of the tariff chaos, we would instead be focused on the arrival of the March Consumer and Producer Price Indices (CPI & PPI) this week. The Fed has continued to insist it needs more evidence of declining inflation before they resume cutting interest rates. In terms of offering this evidence, this week’s inflation reports could not have been better. Inflation plummeted at the headline, in outright contraction for the month, and yet, markets barely blinked. Here’s the detail:
Overall US CPI moved down to 2.39% in March, the lowest level since February 2021. US Core CPI (ex-Food/Energy) moved down to 2.81%, the lowest level since March 2021! The headline month-over-month showed outright contraction at -0.1%! To sum up, this brings US Core CPI Inflation back below 3% for the first time in 4 years and by itself should absolutely be reason enough for the Fed to resume cutting.
Not to be outdone by the Consumer Price Index, on Friday of this week the Producer Price Index (PPI) declined by a whopping -0.4% month-over-month v. 0.2% expected The PPI Core (Ex-Food/Energy) declined by -0.1% month-over-month Exp. 0.3% PPI 2.7% YoY, Exp. 3.3% PPI Core 3.3% YoY, Exp. 3.6%.
By any objective measure, these are very good data points, but the problem with markets is they are March numbers and now it’s all about “what about April and beyond with tariffs!!!!??” Alas, we’ll have to get through more data before the plodding Fed is ready to intervene.
Certainty is Always Elusive
Investing, at its core, remains fundamentally uncertain despite our best analytical frameworks and historical patterns. Markets represent the collective actions of millions of participants, each responding to imperfect information and unpredictable events that continually reshape economic landscapes. The pursuit of certainty in this environment is not only futile but potentially harmful, often leading investors to delay decisions indefinitely or, worse, to develop false confidence in particular outcomes.
Those who achieve lasting investment success typically embrace uncertainty as an inherent feature rather than a flaw, focusing instead on establishing resilient portfolios that can weather various scenarios rather than perfectly predicting any single outcome. This is why we spend so much time focusing on proper asset allocation first and foremost. The wisest investors understand that managing uncertainty, rather than eliminating it, represents the more pragmatic and ultimately profitable path.
“Markets are always in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”
– George Soros
Food for Thought
If large trade deficits with foreign nations are so bad for our country, how do we explain the following graph which shows massive US corporate earnings and stock market outperformance over the past 15 years v. the rest of the world?
The Media Has You Focused on The Wrong Thing
The media’s obsession with identifying precise market bottoms creates a psychological trap for investors, causing many to miss extraordinary buying opportunities that emerge during significant downturns. Financial news outlets generate endless content attempting to pinpoint exact bottoms, inadvertently conditioning investors to wait for perfect entry points that rarely materialize.
This perfectionism paralyzes decision-making during market distress precisely when the most advantageous investments become available. Historical analysis shows that purchasing quality assets during major corrections, even if not at the absolute bottom, has consistently delivered exceptional long-term returns.
Investors who waited to buy until they received definitive “all-clear” signals from the media during the 2008 financial crisis, the 2020 pandemic plunge, or other significant downturns typically missed substantial portions of the ensuing recovery. The relentless pursuit of perfect timing, fueled by media speculation, ultimately prevents many investors from capitalizing on the “good enough” entry points that still represent generational buying opportunities.
Take the following charts as an example. In the past, it has been a great time to load up on equities when the put/call ratio is 1 or above and the Volatility Index (VIX) is 50+. (Both conditions we saw this week) It doesn’t mean you will get the absolute bottom of the market, but you are likely getting close. It’s always possible it will be different this time, but for the past 40+ years when these indicators have reached these levels, it proved to be a good time to buy.
Big Gains Lead To?
The S&P 500 was up 9.5% on Wednesday of this week after President Trump walked back the reciprocal tariffs announced the week prior in order to allow a 90 day negotiation period. This marked the 3rd biggest 1-day gain for the S&P index since 1950. What has happened in the past following the biggest 1-day gains? Well, stocks moved substantially higher over the next 1, 3, 5 years…every time. Take a look at the table below:
What do all of these time periods have in common? The answer is they all occurred around the time of a market bottom. Notice we didn’t say AT THE EXACT bottom. Because in almost every instance, it was not THE bottom. But when viewed in the context of history, with enough time elapsed to allow for proper hindsight, these were all CLOSE ENOUGH buy points and the resulting 1, 3, and 5 year gains were fantastic.
So the moral of the story once again is in times like these, you should be a buyer, not a seller, and at the very least a holder of equities. As we move forward in time, markets are very likely to, but not guaranteed to, post similar results as what you see in the table above.
Politics & Investing Don’t Mix
The chart below says it all. The blue line shows 5 year inflation expectations amongst Democrat respondents to the University of Michigan Sentiment Survey (Released on Friday). As you can see, inflation expectations amongst this cohort is skyrocketing to a whopping 5.1%. The red line represents the market based expectation (markets are where people put their money where their mouth is) for 5 year forward inflation. Here you will see this measure is steadily declining and barely above the Fed’s magic 2% inflation target at 2.27%. When it comes to investing, try to check politics at the door and make your decisions based on sound fundamentals, not the emotions tied to whether your favored politician is in or out of office. At a minimum, the University of Michigan Sentiment survey has been exposed to be majorly flawed with political biases rampant.
Economic Funnies
Crazy Stat(s) of the Week
- The S&P 500 was up 9.5% on Wednesday, the 3rd biggest 1-day gain since 1950.
- The S&P’s 14-day RSI (Relative Strength Index) had its biggest one-day jump ever on Wednesday (since 1952 when the 5-day trading week began).
Wednesday / “Hump Day” has been the only day this calendar year that the stock market has generated positive returns. Sell on Wednesday at the close, and buy at Tuesday’s close would have generated a fantastic return to date. Every other day of the week has seen market declines so far this year. The table below gives the picture.
Quote of the Week
“You won’t call the bottom. Waiting for “the bottom” is a flawed strategy. By the time it’s obvious, you’ll face fierce competition. Start buying when it feels worst.”
– Seth Klarman
Calendar of Events to Watch for the Week of April 14th
Q1 earnings season continues to ramp up next week and likely will take center stage as analysts, traders, and investors look for any clues of declining economic prospects, particularly in the guidance for next quarter and full year 2025.
On the US Economic Calendar, the main events will be fairly limited with March Retail Sales data the primary focus on Wednesday. That said, all of the backward looking economic data is being dismissed in light of the significant tariff changes announced on April 2nd. This uncertainty is likely to weigh on future reports and markets will be on edge until proven otherwise.
Finally, on the monetary policy front, the next Fed meeting will not take place until May 7th.
Monday 4/14 – No major US economic reports today.
Tuesday 4/15 – The US Export / Import Price Index for March (again rear view mirror reporting) is expected to show a 0.0% and -0.15% respectively. No inflation in these numbers but this is all pre-tariff.
Wednesday 4/16 – US Retail Sales for March is expected to show a 1.4% month-over-month at the headline v. 0.2% last month. The Retail Sales ex-Auto sub index is expected to show a more modest 0.3% increase, in-line with the prior month. March Industrial Production is expected to decline by -0.2% v. a 0.7% increase last month.
Thursday 4/17 – March Housing Starts are expected to show a -5.4% decrease over the prior month. Building Permits are expected roughly in-line. The Philly Fed Index is projected to be 9.0 v. 12.5 in the prior month. Finally, the weekly jobless claims and continuing claims data will continue to get attention for any signs of potential weakening in the labor markets.
Friday 4/18 – US Markets are closed in observance of the Good Friday holiday.
Source: MarketWatch / FactSet (April 2025)
