by Ivan Martchev
April 1, 2025
The expeditious unraveling of the respectable 5% rebound of the S&P 500 Index off the mid-March lows can be primarily linked to one event, the 25% tariff on foreign-made cars that was announced March 26, to take effect on April 3rd. I agree that 40 years of bad trade policy has de-industrialized America, with some terrible long-term consequences, but I do not believe that such trade policy can be reversed in three months, or even three years. President Trump is not giving the auto industry any breathing room to adjust.
It takes two to three years to get an auto plant operational, from start to finish. I am sure that Mr. Trump knows this, given that Elon Musk is a close advisor, so the question that needs to be asked is, If Mr. Trump knows that it is not practical to build domestic car plants in short order, what is his objective?
His objective may be that he is jockeying for position to make a bigger trade deal with the countries most affected by the auto tariffs, by applying maximum pressure early. If so, then the other important question is, How long would it take to make some major trade deal announcements after April 3rd? If you can answer that question, you will probably have an answer to when the ultimate stock market bottom will be.
I don’t think the stock market will wait for all the global trade and tariff issues to be resolved, but one or two big wins are necessary for a turnaround to start. Investors were grappling with discounting the April 2 reciprocal tariffs deadline, but the auto tariffs came out of left field and in very short order, which were the main driver behind a 200-point (-3.4%) S&P 500 sell-off in the three days at the end of last week.
The two most powerful public officials in the U.S., and the organizations they lead, have the power to move the stock market disproportionately in times of peace. Those two officials are Jerome Powell of the Federal Reserve and President Donald Trump. In December 2018, Fed Chair Powell caused the S&P 500 to fall by 19% by over-tightening monetary policy. He eventually backed off and the market quickly recovered. If he wants to do the same, President Trump can do it simply by over-tariffing. All he needs to do is just keep hitting investors with large tariffs every week and the market could fall that far in no time.
I think such a strategy could derail the rest of his policy agenda, so I am hoping he comes to his senses fast. As of this Sunday (when I typically write these commentaries), any hope I had that he may have learned from Teddy Roosevelt about “speaking softly and carrying a big stick” is rapidly disappearing.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To determine that this market has bottomed (as of March 13), the S&P 500 needs to recapture the highs of last week, which roughly coincide with a rising 200-day moving average. This can happen in relatively short order, depending on the news flow, which by definition are unknowable ahead of time. If we start a cycle of tariff recriminations and see deteriorating economic data, it is hard to say how much downside there will be, although in this case the blame will go on President Trump directly as he is moving the goalposts, no matter how necessary his actions may be, to address the long-term imbalances in U.S. trade policies.
All this tariff uncertainty has put a lot of pressure on what investors call the “soft” data, mainly sentiment surveys, but it has not hit the hard data, the actual measures of how the economy is doing. Deteriorating soft data puts pressure on hard data to keep coming in strongly, and that puts extra pressure on weekly jobless claims, due every Thursday, on monthly PMI indicators and the March payroll report that is due on Friday. Bad news in any of these are unlikely to be met with enthusiasm from the investor community.
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