All Eyes On China

By Jeff Wang

Last month we talked about a V or W shaped recovery and it certainly looks closer to the latter, but all eyes remain on how tariffs play out. Meanwhile, earnings season has begun and it doesn’t look all that bad for big tech, but how will it play for others?

Playing a flat market

Before we go through the usual news, this is the third month in a row where we should set some expectations for the following month. We expect the short term to “feel better” as tariff volatility gets adapted and priced in, but we are not comfortable about the market a few months from now if supply chain woes cause inflationary spikes and shortages later. We feel this could create a “flat” market, where there are lots of moves up and down but overall remain in this range. Thus there are two ways to play the current market:

1. Remain diversified as earnings come in and potentially point to softening forecasts, it means the stock market could actually reverse its recovery

2. Play perpetuals on sharp down and upswings, during a volatile market where prices tend to revert to mean, it’s a good time for traders

3. However, do not get caught in a“death”loop where you buy the pumps and sell the dips. Don’t chase in a volatile market since you’ll have another big move around the corner anyway

That’s not to say the market will be flat, but it certainly doesn’t know how to price itself right now. Remember the simple rules, buy the dip and sell the pumps, and don’t chase.

The Roller Coaster continues

April proved to be a tumultuous month for markets, with crazy volatility across stocks, bonds, and cryptocurrencies. At the heart of the turbulence was an escalation in U.S. trade tensions, with Trump’s new “Liberation Day” tariffs and increasing escalation of tariffs between the US and China. The SPX was 10% off its highs and markets waited for every tweet or news release of whatever tariff news was next. However, after Scott Bessent (Treasury Secretary) made a comment that these tariffs were unsustainable and would be pulled back, things quickly calmed down in markets, bouncing back 6% after the market digested this.

In summary, the market probably doesn’t believe we’ll ever have high persistent tariffs and this has simply been a way to get better trade agreements with all countries. It has caused a lot of friction however, and has pushed some countries to work against us rather than with us. While markets have largely come back, it’s probably not telling the story later on if there are any supply chain disruptions. Remember back in COVID, when suppliers stopped producing and shipping things, it took a few years to get back to normal, this is happening now as suppliers have paused to see what happens (or have started moving their operations to Vietnam), and hopefully we don’t face shortages down the road.

Meanwhile, macroeconomic indicators sent mixed signals. The Consumer Price Index (CPI) showed that inflation was easing faster than expected. Headline CPI fell by 0.1% month-over-month, the first monthly decline since 2020, bringing year-over-year inflation down to 2.4%, compared to 2.8% in February. Core inflation, which excludes food and energy, decelerated to a 2.8% annual pace, the slowest in four years. So even though there are fears of inflation, the current data shows things are slowing down, mainly driven by lowered gas and oil prices. We’ll keep monitoring both the tariff situation and the macro data, but it is showing mixed results.