In our December 17 Morning Briefing, we wrote: "With bullishness abounding, contrarian indicators are flashing red, and we see the potential for a market correction early next year." Our major concern was that the stock market's bulls were discounting too many cuts in the federal funds rate this year, while the bond market's bears were signaling that the Fed had already cut the rate by too much. In addition, we expected some choppiness in stock prices during the first half of the year until there was more clarity on the economic impact of Trump 2.0.
President Donald Trump's Nitro Tariffs (TNT) turned out to be the main drivers of the 18.9% correction in the S&P 500 from February 19 through April 8. Most of that drop (12.3ppts) occurred during the two days after April 2, which Trump declared was "Liberation Day," when he imposed draconian reciprocal tariffs on 60 countries. We did not believe that day might mark the end of the correction as some market watchers expected.
Sure enough, lots of Americans were liberated from some of their substantial capital gains in the stock market during those two post-liberation days. They recouped some of those losses on April 9, when Trump postponed the reciprocal tariffs but maintained the 145% tariff on China. The S&P 500 soared more than 9% that day for its third-largest gain in a single day since World War II.
On Friday evening, the President pivoted again. He said he could offer some exemptions to his 10% tariff on most US trading partners—even as he insisted that it was "pretty close" to a floor for nations seeking to negotiate trade deals. Later that evening, he exempted smartphones, computers, and other tech devices and components from his reciprocal tariffs. Earlier in the day, Trump's press secretary said that the President is "optimistic" that the US and China can strike a deal over tariffs.
So in a matter of a few days, Trump created a tariff crisis that caused stock prices to fall sharply, then responded to the crisis that he had created by providing a series of Trump Puts to boost stock prices. We conclude that the S&P 500's latest correction most likely bottomed on April 8. Stocks should rally again on Monday.
But wait: Commerce Secretary Howard Lutnick, appearing on ABC's This Week today, said that Friday's exemptions applied only to reciprocal tariffs. The administration will be announcing more tariffs on specific products, such as chips and pharmaceuticals. As Forrest Gump might have said, "Tariffs are like a box of chocolates, you never know what you're gonna get."
Let's assess the damage from February 19 through Friday's close:
