Tariff Week?

Key Takeaways

• Market Uncertainty Continues Driving Significant Volatility And Broad Stock Declines
• Tariff Announcements Remain Key Catalyst For Near-Term Market Movements
• Watching Volatility And Leadership Stocks Can Indicate Future Market Trends

If there is one thing markets dislike, it’s uncertainty. Uncertainty is synonymous with volatility and that is exactly what we’ve seen in markets of late. Last week, the S&P 500 fell 1.5%. The Russell 2000 dropped 1.9% while the Dow Jones Industrial Average fell 1%. But technology stocks really took it on the chin, dropping 2.5%. The main fear driving stocks lower is tariffs and the uncertainty as to just what will be taxed and by how much.

Beneath the surface, the carnage is even worse. While the Nasdaq Composite is down 14% from its 52-week high and the S&P 500 is down 9.5%, stocks like Nvidia are down over 31%. Amazon is down over 20%. Tesla has seen its valuation cut by nearly 50%. In other words, the damage is significant in notional terms and stocks that were once hailed as leadership stocks are now struggling to find a base.

This week has some important economic data scheduled for release. Tomorrow, the JOLTS report on job openings is due out. Then on Friday, we’ll get March employment figures. But the big news will be Wednesday’s announcement on tariffs. Various numbers have been floating around and I’m not going to speculate which ones are accurate. Frankly, I’m not sure anyone knows with certainty what will be announced, and it could change multiple times before then. I think the bigger takeaway for investors is that we shouldn’t be shocked by continued volatility, at least until Wednesday.

A couple other things for today. Today is the end of the first quarter. It’s not uncommon to see window dressing at the end of a quarter, and given the magnitude of the recent drop, I would not be surprised if we saw some opportunity buying. However, the 200-day moving average will likely serve as a resistance level and any opportunity buying could stall at that point. Currently, that level is 5,759. Interestingly, Goldman Sachs has set a year end price target of 5,700 for the S&P, after revising it lower two separate times this month.

The tariff uncertainty hanging over the market is leading to questions about the health of the overall economy. Many are predicting a slowdown and we’re seeing that reflected in commodity prices such as oil. Oil prices have been below $70/barrel since the end of February and lower oil prices are often seen as a leading indicator for economic demand. We’re also seeing bond yields falling. Not long ago, lower yields would have been seen as a positive sign of slowing inflation. However, the drop in yields is now being taken as a sign of a potentially weakening economy. At the same time, concerns over inflation are still floating around as tariff policy is generally understood to be inflationary. Last Friday, the most recent read on inflation came in stronger than expected and gold, often used as a hedge against inflation, is now trading above $3150 in premarket.

For today, I’m going to closely monitor volatility. While I think the possibility for some bottom-fishing exists, if we don’t see confirmation from volatility, I’m skeptical any rally can hold. In addition to volatility, I’m also watching for stocks that manage to close flat to higher if the broader market closes lower. Those stocks that manage gains during a broad pullback could emerge as leadership stocks moving forward. Currently, equity indices are all in the red in premarket with losses ranging between just under 1% to 1.5%. As always, I would stick with your investing plans and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.