Weekly Trader's Outlook

Turmoil Hits Stocks on Tariff Concerns

April 4, 2025 Nathan Peterson
Stocks are on track for a sharp weekly drop following global trade concerns and the potential impact to economic growth.

The Week That Was

If you read last week's blog you might recall that my forecast for this week was "Volatile" with a secondary reading of "Slightly Bearish," citing concerns around the technicals and heightened uncertainty around Wednesday's reciprocal tariff announcements. Stocks were certainly hit with a volatility storm (The Cboe's VIX is currently at 40), but the performance was full-on bearish, not "slightly" bearish, so my forecast was partially right. Most reading this blog are likely aware of the tariff details that were revealed on Wednesday from the Trump administration. In short, the rates were much higher and broader than markets anticipated, and stocks are on pace to be down roughly 8-10% on the week (at least at the time of this writing). Many analysts believe that negotiations are underway between the U.S. and their trading partners, and this will result in downward revisions to the initially announced rates. However, President Trump appears to be stern in his stance on tariffs and several countries have either responded with counter measures or have vowed to do so if the tariff rates remain in place. On a positive note, President Trump said he would be willing to negotiate if presented with a "phenomenal" deal and earlier today he extended a deadline requiring China-based ByteDance to sell U.S. Tik Tok operations for another 75 days. So, at least for the time being, there appears to be some willingness for negotiations around trade, but the uncertainty level remains elevated.

In other news, March Nonfarm Payrolls came in well above estimates this morning (see "Economic Data, Rates & the Fed" below), but the firm data did little to sooth equity markets. Many view the report as backward looking in light of the trade developments over the past 48 hours. We also heard remarks from Federal Reserve Chairman Jerome Powell early today and while he noted that Trump's tariffs could result in higher inflation and slower growth, he didn't indicate that rate cuts are coming unless the hard data warrants the need.

Outlook for Next Week

At the time of this writing (2:35 p.m. ET), all the major indices are at the lows of the session (DJI – 2,010, SPX - 295, COMP - 888, RUT - 91), as "dip buyers" appear to be sidelined by lingering tariff uncertainty. The sell-off in stocks over the last 48 hours following the tariff announcements is the largest drop since the throes of the COVID-19 pandemic. While Q1 earnings season unofficially starts next Friday with the big banks, the focus, and direction for stocks, will be tied to any global trade developments. If nothing changes or worse, if we get retaliation from other countries, stocks will likely remain under selling pressure. Of course, any positive developments and stocks will likely be poised for a sharp rebound given the current oversold status (more on this in the "Technical Take" section below). Therefore, my forecast for next week is "Breakout," which I define as a greater than 2.0% move, either higher or lower, by next Friday. I would like to provide a directional bias, but I simply can't since I don't know what the news flow will be over the next week.

Other Potential Market-Moving Catalysts:

Economic:

  • Monday (4/7): Consumer Credit
  • Tuesday (4/8): no reports
  • Wednesday (4/9): EIA Crude Oil Inventories, MBA Mortgage Applications Index, Wholesale Inventories
  • Thursday (4/10): Continuing Claims, Consumer Price Index (CPI), EIA Natural Gas Inventories, Initial Claims, Treasury Budget
  • Friday (4/11): Producer Price Index (PPI), University of Michigan Consumer Sentiment - Preliminary

Earnings:

  • Monday (4/7): Levi Strauss & Co. (LEVI), Greenbriar Companies Inc. (GBX), Dave & Buster's Entertainment Inc. (PLAY)
  • Tuesday (4/8): RPM International Inc. (RPM), WD-40 Co. (WDFC), Cal-Maine Foods Inc. (CALM)
  • Wednesday (4/9): Delta Air Lines Inc. (DAL), Simply Good Foods Co. (SMPL), Constellation Brands Inc. (STZ)
  • Thursday (4/10): CarMax Inc. (KMX), Lovesac Co. (LOVE)
  • Friday (4/11): JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), Morgan Stanley (MS), BlackRock Inc. (BLK), Bank of New York Mellon Corp. (BK)

Economic Data, Rates & the Fed:

Markets received a heavy dose of economic data this week, which included the monthly jobs report. The good news (for the bulls) is that Nonfarm Payrolls came in well above estimates, so for now at least, the labor market appears to still be holding up well. The bearish perspective would see the data as stale and likely irrelevant given the global trade developments over the past 48 hours. That same perspective could also be applied to many of the other data points released this week, highlighting the potential (future) impact to the global economy from Wednesday's tariff announcements. Here's the breakdown from this week's reports:

  • Nonfarm Payrolls: Increased by 228K in March, well above the 140K expected. However, February job gains were revised lower by 48K to 117K (from 151K).
  • Average Hourly Earnings: +0.3% vs. +0.3% estimate.
  • Average Workweek: 34.2 vs. 34.2 expected.
  • Unemployment Rate: Rose to 4.2% from 4.1% in the previous month, but in-line with expectations.
  • Construction Spending: +0.7% vs. +0.2% expected.
  • ISM Manufacturing Index: 49.0%, below the 49.5% expected (a reading below 50.0 represents economic contraction while a reading above 50.0 indicates expansion)
  • S&P Global US Manufacturing PMI (Final): 50.2, down from 52.7 in the prior month but above the 49.8 expected. Within the report, input costs inflation came in at the highest levels since August 2022 while output price inflation accelerated to a two-year high.
  • JOLTS (Job Openings):  7.568M, down from 7.762M in the prior month and below the 7.616M expected.
  • ADP Employment Change: +155K vs. +140K estimate.
  • Initial Jobless Claims: Decreased to 219K from 225K in the prior week, and below the 227K economists had expected. Continuing Claims increased 56K to 1.903M from last week.
  • ISM Services: 50.8%, below the 52.8% expected.
  • The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised up to -2.8% yesterday from -3.7% on April 1st.

Bond prices pushed higher this week, sending yields significantly lower, as tariff and global growth concerns sent investors seeking "safe haven" assets like U.S. Treasuries. Compared to last Friday, two-year Treasury yields sank nearly 30 basis points (3.633% vs. 3.912%) and 10-year yields declined a similar amount (3.953% vs. 4.255%).

Expectations around potential rate cuts from the Fed pushed higher this week, driven by the sharp sell-off in stocks. Per Bloomberg, expectations for a 25-basis-point cut at the May Federal Open Market Committee (FOMC) meeting are currently 43% from 20%, with a theoretically 100% chance of a cut at the June FOMC meeting. Note: There is no FOMC meeting in April.

Technical Take

S&P 500 Index (SPX - 266 to 5,130)

The S&P has been in virtual free-fall over the past 48 hours, driven by Wednesday's higher-than-expected tariff rates from the Trump administration. Obviously, the technicals have taken a bearish turn on an intermediate term basis but are in extreme oversold territory from a near-term basis. For example, the 24 reading on the Relative Strength Index (RSI) represents the lowest levels since the March 2020 COVID lows. Does a near-term oversold status mean we are due for an immediate bounce? Not necessarily, and the near-term trajectory of the SPX will be tied to the news flow related to tariff negotiations. Any positive developments in tariff negotiations could trigger a sharp bounce, while prolonged negotiations will likely result in lower stock prices. Therefore, I see the SPX currently in a binary technical state, which I am terming as "breakout."

One last technical point, the S&P 500 is currently trading around the 61.8% Fibonacci Retracement level from the October 2022 lows to the February highs. Sometimes, these retracement levels can provide some technical support, but of course there are no guarantees, especially in highly volatile market environments like this.

Near-term technical translation: breakout (meaning >2.0% move higher or lower by next Friday)

S&P 500 hit the 61.8% Fibonacci Retracement level today (from the October 2022 low to March 2025 high). Relative Strength Indicator at 24.

Source: ThinkorSwim trading platform

Past performance is no guarantee of future results.

Nasdaq 100 Index (NDX - 531 to 19,267)

Last week I mentioned that if the NDX doesn't hold support at 19,225 that the next potential support level was the 17,435 low from last August's unwind of the "Yen-carry trade." I certainly didn't expect the index to be testing that support by this week but here we are. Much of what I stated about the SPX above (bearish technical, but near-term extremely oversold) can be applied to the NDX. Meaning any global trade developments (or lack thereof) over the weekend will likely drive near-term price action, and I also place the NDX in the "breakout" camp.  

Near-term technical translation: breakout (meaning >2.0% move higher or lower by next Friday)

Nasdaq 100 back down to last August lows from the unwind og the Yen carry-trade.

Source: ThinkorSwim trading platform

Past performance is no guarantee of future results.

Cryptocurrency News:

What's really caught my eye this week in the crypto world is the recent relative strength seen in the price of Bitcoin (BTC). Historically, Bitcoin prices have seen significant drawdowns when stocks encounter a bout of strong "risk-off" sentiment from investors. Some analysts believe that the price of Bitcoin is most tethered (pardon the pun) to growth stocks or the Nasdaq. For example, during the stock bear market in 2022 Bitcoin prices dropped over 70% from November 2021-November 2022 (~$69K to $16K). More recently, Bitcoin prices dropped more than 20% during both the stock market sell-off associated with the unwind of the Yen-carry trade last August, and the 10%+ correction in stocks during late February/March. However, stocks are on track to be down 8-10% on the week and one might expect that Bitcoin prices would follow suit, based on historical correlations. So how has Bitcoin performed this week? Prices are essentially flat, currently trading around $83K. It's likely too early to declare that Bitcoin's correlation with risk assets is broken, but this week's relative strength is certainly interesting in my view. From a technical perspective, in the chart below you can see that BTC has found support over the past couple of years around its 200-day Simple Moving Average (gold line in the chart below, currently around $78,500).

Bitcoin prices dropped over 20% during both the yen-carry trade unwind sell-off in stocks last August, and the 10% correction in stocks seen last month. However, BTC prices are flat this week, despite the tumble in the stock market.

Source: ThinkorSwim trading platform.

Past performance is no guarantee of future results.

Market Breadth:

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). It's probably not a surprise to anyone but this week's rout in stocks translated into a rollover in market breadth. On a week-over-week basis, the SPX (white line) breadth sank to 37.40% from 47.20%, the CCMP (blue line) dropped to 21.96% from 32.88%, and the the RTY (red line) is at a two-year low of 19.63% versus 33.28%.

Market breadth sank along with stocks this week.

Source: Bloomberg L.P.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average or new highs vs. new lows.

This Week's Notable 52-week Highs (18 today): AutoZone Inc. (AZO - $24.76 to $3,801.39), Duke Energy Corp. (DUK - $1.64 to $122.40), Coca-Cola Company (KO - $1.36 to $71.82), Kroger Company (KR - $0.01 to $70.73), McKesson Corp. (MCK - $10.42 to $706.51), Philip Morris International Inc. (PM - $5.05 to $157.02)

This Week's Notable 52-week Lows (1,550 today): Agilent Technologies Inc. (A - $5.39 to $104.28), Best Buy Company (BBY - $3.04 to $59.18), Caterpillar Inc. (CAT - $17.38 to $288.38), Decker's Outdoor Corp. (DECK - $5.32 to $95.56), FedEx Corp. (FDX - $8.32 to $207.54), Nike Inc. (NKE - $2.36 to $53.22)

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