The Roller Coaster Ride Continues

I have a suggestion for Six Flags – The SPYder.  Tag line: “Thrills and Spills Galore as your portfolio takes you on a terrifying series of ups and downs, before returning you to the ride’s original starting point.”  Seriously, a recent chart of the S&P 500 (SPX) looks like that of a roller coaster:

SPX, 3-Weeks, Hourly Candles

Source: Interactive Brokers

Bear this fact in mind: the chart above reflects the entire period since the “Liberation Day” tariff announcement on April 2^nd.  Yes, it’s only been three weeks!

The ostensible reason for the rallies that we’ve seen over the past two days is a more optimistic tone about potential tariff negotiations from various key members of the administration, particularly from Treasury Secretary Bessent.  This morning’s rally was bolstered by President Trump’s remark that he had no intention of firing Federal Reserve Chair Powell, though the index’ upward move appears to have run into resistance around levels that have caused other recent short-term rallies to fall back. 

I’ve been asked several times recently about why market sentiment persists in rapidly lurching from one extreme to the other.  The reason I offer is that we are getting major announcements with potentially huge macroeconomic consequences on a daily, if not intraday, basis.  Remember, in just three weeks – 3 weeks! – we had significant multilateral tariffs announced for every country on the globe, had most of them reduced to a 10% baseline, saw a series of tit-for-tat increases with China that have culminated at triple-digit levels, then some helpful commentary about potential negotiations.  And this is not to mention the on-again, off-again threats to central bank independence.  Policy lurches of this magnitude make it extraordinarily difficult, if not impossible, for corporate managers, and thus investors, to plan for the intermediate and longer terms. 

Yet there is an optimistic way of looking at the recent “sturm und drang”.  Because so much of the recent turmoil was “man-made”, meaning that it stemmed from a series of policy decisions and pronouncements from the President and his administration, it can also be unwound in the same manner. 

A friend of mine, a major institutional portfolio manager, wondered aloud to me if some cooler heads had gotten through to the President recently, urging him to look at the market dislocations that his statements had caused.  That got me thinking.  Remember, the post-tariff selloff worsened when the President seemed unconcerned about the markets’ reaction after he dug in his heels about the initial proposal.  This was very jarring to investors who remembered someone who, during his first term, tended to view the stock market as a barometer for his economic performance. 

And this is, perhaps, why investors seem so encouraged by the comments of the past couple of days.  Investors might be getting the type of market-friendly administration they had expected.

The post-election rally was largely predicated upon investors’ hopes that a second Trump administration would offer a conducive investment climate bolstered by deregulation and tax cuts.  There was some initial disappointment that the administrations initial priorities were elsewhere – immigration and rapidly shrinking the federal government — but the disaffection metastasized when unpopular tariff policies arrived, and the complaints appeared to fall upon deaf ears.  Now, if the President’s softer tone implies that he is once again taking investor concerns into consideration, that is indeed a welcome development.  And the wild roller coaster ride might get a bit more subdued.