4-22-25: The Stock Market is in “No Man’s Land”

by Ivan Martchev

April 22, 2025

They say the bulls live above the 200-day moving average while bears live below it. This may be true in normal times, but times are anything but normal now. In some ways, this decline is similar to the COVID shock, as both declines were engendered by mandates from the Trump administration. In COVID, we had a partial shutdown of the economy because of a pandemic, a government-mandated recession. Now we have a government-mandated slowdown of economic activity due to announced high tariffs – out of the blue – then the uncertainty that comes with a series of shifting government actions regarding those tariffs.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If the economic numbers don’t deteriorate from here – because of high levels of uncertainty that can cause companies to postpone investing and hiring decisions – any big trade deals could mean big gains for stocks. The biggest deal is the one with China, but I don’t think that one would be easy or quick.

I don’t believe the Chinese negotiated in good faith during the first Trump administration, as they kept on pressing the same trade practices that brought on that first trade war. Surely the Trump administration knows this, so I’m dying to find out what their game plan is this time, other than super-high tariffs.

Investor sentiment is really low, but that’s actually good news for the stock market. Too much negativity can lead to explosive upside moves under the right scenario, particularly if the economic numbers don’t deteriorate. There is a scenario where we have already hit peak uncertainty (the highest tariff levels), and it can only get better from here with trade deals. How fast it gets better will be the key.

Everything that caused President Trump to kick trade negotiations into high gear is 100% true – the last 40 years of bad trade policy, deindustrialization, etc., but since I am sure that such trends cannot be reversed in three months, or even three years, the only conclusion I can reach is that the administration wants to put together trade deals that would put the U.S. economy on the right trajectory. It is the highest stake negotiation of Mr. Trump’s long career, so I sure hope he doesn’t want to mess it up.

There was some talk last week about Mr. Trump firing Fed Chairman Jerome Powell. If Mr. Trump wants the stock market to drop another 10% fairly fast, he may try it, but I believe he will shoot himself in the foot if he does so. When the history of Jerome Powell’s term at the Fed is written, I am sure there will be mention of his many mistakes, but that is the case with any Fed Chairman. I think Powell means well and he is trying to fulfill an impossibly difficult task now – to forecast tariff situations that change so rapidly.

In other words, Mr. Trump has too many irons in the fire already, and Jerome Powell is one extra hot iron that would be too hot to handle at this point. There is nothing to win by removing Powell, only downside risk. Plus, it is guaranteed to go all the way to the Supreme Court, fast. Even if Trump wins, a downside in the stock market is nearly guaranteed, not to mention the bond market and the dollar’s reserve status.