The Market Rollercoaster: Shock, Awe, and Recovery

The past week has given us financial whiplash. We saw the worst four trading days since the 2008 financial crisis, followed by the fastest upward rip in the same timeframe. The VIX volatility index spiked dramatically before crashing back down. This extreme volatility demonstrates that markets are at peak uncertainty.

What happened? The initial tariff announcement triggered a "shock and awe" tactic that threw global markets off balance. It appears designed to force negotiations on trade reforms – essentially high-stakes poker, with an aggressive opening move that leaves room to dial back later.

The good news: Wednesday's remarkable recovery suggests there is indeed a "Trump put" in place. Washington is clearly watching the markets and willing to act when things deteriorate too quickly. This should provide some comfort that while volatility will continue, market Armageddon seems off the table.

S&P 500 10-Day Chart

Source: MarketWatch

Data as of 04/10/25

Current Market Reality

Despite the recovery, both the S&P 500 and NASDAQ remain 15-18% off their recent highs. The 10% base tariffs are still in place, and uncertainty around potential escalation continues to weigh on markets.

S&P 500 and NASDAQ 10-Day Comparison Chart

Source: MarketWatch

Data as of 04/10/25

Behind the scenes, there's significant pressure to keep interest rates low. The massive short-term government debt accumulated during the COVID era needs to be refinanced, making low rates essential for fiscal stability.

The China situation remains particularly complex. They sell us approximately five times more than we buy from them, making the threatened 125% tariffs a serious long-term problem for their export-driven economy. Neither side is blinking yet.

The chart below illustrates why tariffs create significant leverage: 2024 data illustrates that China exports $462 billion to the US while receiving just $199 billion in return—creating a $263 billion trade surplus vulnerable to US policy changes.

Source: ICAEW

Data as of 2024

Earnings Season: Almost Irrelevant?

Earnings season is now upon us, but in this environment, it almost doesn't matter. Investors desperately need clarity that most corporations simply can't provide right now. How do you forecast when you don't know what tariff rates will be in six months?

S&P 500 earnings growth estimates for Q1 2025 have plummeted from 11.5% to 6.8% as analysts struggle to forecast results amid tariff uncertainties.

Source: Morningstar, FactSet

Data as of 04/10/25

The positive economic news is that job losses have been moderate and inflation continues to trend downward. This reduces downside risk, though prolonged concerns will persist.

Source: Trading Economics

Data as of 04/10/25

The Next 90 Days: What to Expect

In the near term – at least the next 90 days – we'll continue to live with elevated volatility and uncertainty. If tariffs move higher again, we could see another round of deep pullbacks. However, the base case now appears to be an extended period of choppiness rather than catastrophic decline.

An interesting observation: During last week's pullback, we saw record creations in leveraged bull funds at Defiance, particularly on Wednesday when the market started to recover. This indicates that short-term tactical traders are returning to the market in significant numbers. The ETFs that have seen the most trading activity since then have been quantum computing, AI, and income-paying funds (broad-based index funds with options selling for income).

Three Lessons from Last Week

1. There is a Trump put after all – Washington clearly cares about market stability, which provides a floor under extreme sell-offs.
2. The best single days in the market always come out of the blue – Investors should stay in the market because days like last Wednesday are impossible to time. When markets move dramatically, trying to time entries and exits usually leads to missed opportunities.
3. Taking losses is rarely the best strategy – Buying on dips, even at peak uncertainty, while uncomfortable, tends to pay off over time. With markets still significantly off recent highs, buying opportunities remain abundant. Remember: wealth is built during market pullbacks.

Why It's a Good Time to Consider Buying

• For long-term investors, quality companies with real earnings, growth potential, and strong balance sheets are now trading at multiples that have been cut in half.
• Consider inflation-friendly commodities like gold or income ETFs that pay distributions on gold ETFs.
• This has been a massive revaluation period. If you're concerned about overexposure to the Magnificent Seven stocks but believe we'll return to a broader market rally, consider a Mag-7 focused ETF. However, I don't recommend selling your existing Magnificent Seven exposure – remember, we're still 18% off NASDAQ highs.
• If you prefer not to pick individual stocks, ETFs offer diversified exposure. AI and quantum computing ETFs are effectively "on sale.”

IONQ vs RGTI vs NVDA - Hourly Chart

Source: MarketWatch

Data as of 04/10/25

Bottom Line

The past week has been extraordinary, but it's reinforced timeless investing principles. Stay invested, use volatility to your advantage, and maintain a long-term perspective. While uncertainty will persist in the coming months, the underlying economic fundamentals remain reasonably solid, and there are genuine opportunities emerging from this volatility.

As always, stay informed, stay diversified, and keep perspective. Markets will eventually find equilibrium, and those who maintained discipline during this period of uncertainty will likely be rewarded.