BOINGGGG Goes the Whipsaw!

As I finally get around to typing today’s piece, I’ve had to rethink what I’d wanted to say multiple times.  That happens when you have a month’s worth of volatility in about an hour and a half. 

In a nutshell, we opened lower, traded even further south, zoomed higher on a debunked headline, then settled into a broad trading range after the dust settled.  We’ll see if that remains accurate by the time I finish writing, let alone by the end of the day.  But so far, this has been a classic “whipsaw” day.  Comments attributed to Kevin Hassett, National Economic Council Director, implied that the President was considering a 90-day pause on all non-China tariffs, and the market understandably bounced sharply off its lows.  We then gave back almost all the gains after the White House declared that the story was “fake news.”  This, dear readers, is volatility writ large.

The early vibes were understandably ugly.  Remember, one of the reasons for Friday’s selloff was news that China intended to retaliate with 34% tariffs of their own, and Sunday night/Monday morning (US time) was the first opportunity that Asian investors could fully react to that unwelcome development.  We wrote about the Chinese retaliation on Friday, asking “what else did you expect them to do?”  Even though it was predictable from a geopolitical viewpoint, it was thoroughly unwelcome news for already jittery investors throughout the globe.  Although Asian markets bore the brunt of the declines – the Nikkei closed down -7.83% and the Hang Seng was an even more dismal -13.22% — European markets joined the parade once they opened.  That led to selloffs in pre-market US futures, and around went the carousel once again.  Continued selling by overseas investors and the likelihood of margin-related selling likely contributed to an early decline in the S&P 500 (SPX) that came close to -5%.  Throw in the ensuing +3.4% post-Hassett bounce, and we have a mind-blowing intraday move!

A problem for investors was the messaging from the administration over the weekend.  In a news report, I described the market mood as “[t]here are a lot of confused, scared and angry people out there.”  In a situation like this, when millions of investors, casual and professional alike, are experiencing visceral emotions, some sort of empathy from governmental decision makers would go a long way toward calming the situation.  Frankly, that’s not what we got.  Treasury Secretary Bessent tried a measured, intellectual approach, while Commerce Secretary Lutnick and Senior Counselor Navarro took resolute stances that could be interpreted as defiant or combative.  There seemed to be little sympathy, let alone empathy, for investors’ suffering. 

Furthermore, there was a lack of clarity in those responses.  Some implied that the tariffs are non-negotiable and here to stay no matter what, but at the same time, some highlighted claims that 50 or so countries have reached out, hoping to negotiate the tariffs lower.  Which is it?  Were the attempts at negotiation summarily rebuffed – it didn’t sound that way – or were the outreaches highlighted to assuage some concerns?  Markets crave clarity and dread uncertainty.  It is easier to plan and model if we know what to expect, even if the potential outcome seems loathsome.  

And if the term “loathsome” seems politically charged, I think we can assert that markets have been voting on the tariff plans since “Liberation Day” and that the vote has been against them is a resounding landslide.  Furthermore, the discontent crosses political lines.  A senior policy analyst at the Heritage Foundation expressed concerns about the tariffs, and a lawsuit filed by the New Civil Liberties Alliance, a group supported by noted conservatives Charles Koch and Leonard Leo, among others, challenges their legal basis.  That said, none of these actions seem likely to cause the administration to change course anytime soon.

As for today’s volatility, we offer the following reminder:

                Bear market rallies, are short, sharp, and ferocious

The Hassett story, if true, would have been a tangible justification for a substantial rally.  The positive vibes proved to be fleeting, but it showed how desperately traders want some tariff relief.  And because volatility begets volatility, and also because no one wants to miss a rally – even during seemingly dire markets – the up moves catch bids very quickly.  Until we get some sort of clarity, or the market finds a more comfortable level, the bounces could prove fleeting.  That makes it possible for dip buying to morph into knife catching.  But this morning’s bounce almost made one of my Sunday comments prophetic very quickly: “Sometime this week it’s probably inevitable that we will have an up day.”  The question of course is, “if true, when?”