On days like today it is important to remember to stay calm and not react emotionally. We will rebound from this as we have every time in the past. But it is time to honor our stops and strategies to preserve capital and wait for the proverbial fatter pitch. So, we are selling some positions that have hit our stops and the seasonal trades affected by our Best Six Months MACD Seasonal Sell Signal that triggered today. Please refer to the details in the accompanying article and updated portfolio tables.
The market’s response to Trump’s tariffs has been swift and damaging, increasing the odds of our 2025 Annual Forecast Worst Case Scenario up to 50% from 10%. Any remaining optimism has been quashed in the past 24 hours. The announced tariffs appear to be even worse than the worst case. They were neither limited nor focused, and instead broad ranging with over 180 countries being hit at significantly higher levels than expected.
Many countries have vowed to retaliate and there is pushback from many fronts. Yet the Trump administration appears to have already dug their heels in on these tariffs on one hand and on the other they say they are open to negotiations if other countries offer something phenomenal. This back and forth creates more confusion and uncertainty exacerbating trade war, stagflation, recession and bear market fears.
As we wrote in last week’s April Outlook and reiterated in yesterday’s
Monthly Members’ Webinar, there is no way to sugar coat this. The market is telling us there is more trouble ahead: Down Q1, tracking bearish post-election patterns and breaking through several technical support levels. Today’s nosedive is likely not the end of this downtrend. Further downside is expected.
Today we broke through another technical support level at 5500 on the S&P 500 and canceled the W-1-2-3 swing bottom set up in the box on the chart. We have also broken the uptrend line from the April and August 2024 lows. We are now sitting at the 5390-support level near the September 2024 low. A break below S&P 5390 and 16200 on NASDAQ brings the August and April lows into play.
We have updated the One-Year Post-Election Seasonal Pattern chart through today’s close. We have removed a few lines and left only the worst-case scenario trends for clarity. Once again 2025 is shaping up more like the old school weak republican president post-election year performance noted on page 28, Stock Trader’s Almanac 2025. Overall, the market is firmly in correction mode although the Russell 2000 hit bear market levels today.
Remember the late Edson Gould’s wise words we have invoked several times recently: “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.”
Retaliation is likely which will only compound the stresses on the market resulting in more chop, volatility and likely further losses. As of today’s close, our Worst-Case Scenario odds are around 50% and Base Case is 50%. Someone could blink and the tariff unwind could unfold quickly, but that may just be wishful thinking. Conditions still could change quickly. If for some reason the market can get positive for the year in the next few weeks we could change our view.
But for now, we are moving to sidelines and will await the next major buying opportunity. One way or another, the market will move past tariffs and begin looking for a recovery. The next opportunity could be later this year, possibly in late Q3 or early Q4.