Trump Keeps Up Trade Pressure, S&P 500 Carves Biggest Daily Range in 15 Years

Trump Keeps Up Trade Pressure, S&P 500 Carves Biggest Daily Range in 15 Years

Markets extended last week’s volatile fallout from the US-driven reciprocal tariffs, producing one of the most volatile US trading sessions in recent history.

 

• With no soothing words from the White House over the weekend for investors following last week’s reciprocal tariffs fallout, markets opened the new week highly agitated
• Amid high volatility, rumors of a 90 day pause provided recovery and were eventually overturned
• The S&P 500 closed Monday’s session little changed only after carving out the largest daily range the index had seen since 2010

President Trump Offers No Solace for Trade Partners Nor Markets

Last week, the market was surprised by the Trump Administration’s decision to move forward with reciprocal tariffs on many of the United States largest trading partners. Given the back and forth between the US and its closest trading partners – Mexico and Canada – back in February, the market seemed to be harboring some expectation that last minute negotiations would be accepted as symbolic capitulation which the White House would in turn accept as penance to ‘buy more time’. That understanding, however, proved misguided; which is what touched off the market retreat through to almost the low of the week through Friday. Typically, an administration that closely monitored the market and witnessed fear without a sense of speculative resilience would have taken the opportunity to offer some soothing words to investors while simultaneously trying to keep the pressure on trading partners. That was not President Trump’s game plan as the he would instead offer the remark “I don’t want anything to go down, but sometimes you have take medicine to fix something”. Those remarks did not sit well with the market. The major US indices – S&P 500, Dow Jones Industrial Average and Nasdaq 100 – all opened Monday with a substantial gap lower.

Chart of S&P 500 and 1-Day Rate of Change (Daily)

Source: John Kicklighter, TradingView

 

Market Fear Breaks Through Complacency to Trigger Extremes

Monday’s trading session played out like the height of a storm at sea. On the heels of significant Asian and European market de-risking efforts preceding the New York session saw large bearish gaps and initial selling pressure that tipped the S&P 500 below the technical ‘bear market’ threshold – a 20 percent retreat from the cycle high – at least on an intraday basis. This extreme volatility and the fixation around headlines that could flip the market translated into an extreme response to a rumor that President Trump was considering a 90 day delay on the applications of the tariffs before the April 9th application of the new levies. The benchmark index swung from trough of nearly -5 percent loss on the day (over Friday’s close) to up just over 3 percent. Yet that enthusiasm was also short-lived as the White House announced that the President was not considering the broad delay. Trump would not long after this reversal say in a X post that those following American interest should not “be weak”, cementing the recognition of his resolve.

Chart of S&P 500 and Daily Ranges as a Percentage of Spot (Daily)

Source: John Kicklighter, Standard & Poor’s Data

 

The Trade War with China Will be Particularly Fraught

Despite the President’s doubling down on his efforts to fight what he sees as an unfair trading field, there were favorable headlines suggested such as reports that a number of countries had reportedly come to the negotiation table with the US – and the Trump specifically directed the USTR to have talks with Japan. This could be seen as a path through the fog of war, but one country still stands out as being particularly resolute it facing America head on: China. In response to the reciprocal tariffs last week – and likely the lack of capitulation from the US President over the weekend – China announced that it would respond with a 34 percent tariff on all US goods. To this, Trump warned that he could add another 50 percent tariff on top of what was already in place against the country. It would seem that neither country is willing to back down, which would be particularly acute issue for the two should the US find a way through with more of its Western counterparts.

Chart of Shanghai Composite with 1-Day Rate of Change (Daily)

Source: John Kicklighter, TradingView

 

What Save Havens the Market Shows Preference For Speaks to the Severity of Sentiment

As the markets struggle to find a sense of stability and a path forward for global trade and growth potential, the need to reduce risk exposure will turn into an outright need to safeguard capital. That increased intensity registers as a preference in safe haven. Broadly speaking, there is a natural alignment for typical safe assets; but given the depth of concerns, preferences tend to arise. With the VIX pushing five-year highs, and briefly topping 60 percent intraday, absolute liquidity becomes of principal concern which raises the appeal of the US Dollar versus counterparts like the Japanese Yen or gold.

Chart of VIX Volatility Index Overlaid with Typical 'Havens' (Daily)

Source: John Kicklighter, TradingView

 

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---- Written by John Kicklighter, Global Head of Content