Weekly Update: Trump Tanks the Market
Good evening, and welcome to this week’s edition of Stealth Trades!
President Trump just wiped out $4 trillion of wealth in 48 hours. His tariff plan – announced Wednesday afternoon – led to a 10.5% decline in the Nasdaq index in less than 48 hours.
That is the biggest 2-day drop since COVID in March 2020.
It was an absolute bloodbath for stocks this week, and Donald Trump is 100% to blame.
Now look… I am not a Trump hater. I voted for him. I have supported all of his economic policies. But what I saw this week was one of the most reckless actions a US president has ever taken.
The premise was simple – other countries impose bigger tariffs on us than we do them, so we are going to level the playing field. You have a 20% tariff on American goods, so we will put a 20% tariff on your goods.
Perfect. Completely agree.
But Trump did not follow this logic.
During the rose garden press conference, President Trump held up this chart showing each country’s tariff on US goods in one column, and the rate we would be charging them in return.
Retaliatory tariffs from the US were to represent 50% of what that nation charged on US imports.
But here’s the problem…
He made up the numbers.
China does not have a 67% tariff on US goods. The blended rate is just under 20%.
The EU does not impose a 39% tariff on us. They charge 2.5% and 10% on cars.
And Vietnam certainly does not slap a 90% import fee on us.
So, where did these numbers come from? Here is Trump’s formula for determining a country’s “tariff” on US goods:
Trade deficit / US imports
President Trump is trying to penalize countries that export more goods to the United States than they import from us. Here’s the math:
In my opinion, this logic is flawed. Of course we are going to have a trade deficit with Vietnam. The per capita GDP in that country is $4,282. The average Vietnamese factory worker earns $1.22/hour. That is the entire reason American companies have clothing, shoes and other goods made there – it’s cheaper.
By contrast, the per capita GDP in America is $82,769. We have immensely more disposable income. And naturally, we are going to purchase more goods than our Vietnamese counterparts.
So, Trump’s plan is to slap a 46% tariff on these goods when they enter the US.
Look… I’m a capitalist. I am not some bleeding-heart softie hoping the whole world will hold hands and sing Kumbaya.
But this plan just doesn’t make any sense. And no one saw it coming…
This is what happened to stocks after it was announced Wednesday afternoon.
The indexes were down 5% in just over an hour. When the market opened up Thursday morning, it sold off some more.
Friday morning, China announced a retaliatory tariff of 34% on US goods.
Trump claimed China charged us 67%. Clearly, they do not. Because this news triggered another massive selloff.
This is one of the ugliest environments for investors in years.
Will big opportunities be waiting on the other side? Absolutely! But in the meantime, this is a lot of pain.
I hope this is part of a bigger plan for the president. I want to believe that this is a calculated move, designed to either drive rates down and refinance the national debt at lower rates or bring world leaders to the table.
If his plan is the latter, this seems like the wrong way to go about it. But that’s just my opinion.
Hopefully we will see a resolution sooner than later. Once this uncertainty is behind us, the market will no doubt resume its march higher. But until I see signs that conditions are improving, my long exposure will remain minimal.
I held a special webinar Monday night covering the tools I use to time the market. I walked viewers through the metrics and indicators that signal healthy conditions.
If you missed that presentation, you should have received the recording. Please watch it. The model should be a big help to you both now and into the future.
To update those in attendance, the net new lows indicator remains deep in the red:
The best-performing sectors are still defensive areas:
And although NFCI did tick down on Wednesday, I will be shocked if it doesn’t jump substantially this week.
Do not be in a hurry to get back in the market. It is an hour until market close at the time of this writing, and the Nasdaq Composite is down 5% on the day, holding near the lows. That is NOT the sign of a market on the verge of recovery.
Best wishes for your trading,
