Over the weekend, President Trump announced tariffs of 25% on both Canada and Mexico, as well as a 10% tariff on China. Such was not unexpected, as contained in the Trump tariff Executive Order. Specifically, that order stated:
“[ Sec 2, SubSection (h) ]: Sec. 2. (a) All articles that are products of Canada as defined by the Federal Register notice described in subsection (e) of this section (Federal Register notice), and except for those products described in subsection (b) of this section, shall be, consistent with law, subject to an additional 25 percent ad valorem rate of duty. Such rate of duty shall apply with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern time on February 4, 2025, except that goods entered for consumption, or withdrawn from warehouse for consumption, after such time that were loaded onto a vessel at the port of loading or in transit on the final mode of transport prior to entry into the United States before 12:01 a.m. eastern time on February 1, 2025, shall not be subject to such additional duty, only if the importer certifies to CBP as specified in the Federal Register notice.
[…] (h) For avoidance of doubt, duty-free de minimis treatment under 19 U.S.C. 1321 shall not be available for the articles described in subsection (a) and subsection (b) of this section. {link} “
The announcement of tariffs set the market on its heels yesterday morning as media writers quickly pushed narratives about the potential impacts. However, as suggested on the “ Real Investment Show” before the market opened on Monday, the best thing to do would be “nothing.” There were a couple of reasons for this suggestion.
The first is that Trump’s tariffs are a “stick and carrot” for negotiating an agreement with both Mexico and Canada. As you will see, all he wanted was assistance in securing the borders, reducing illegal immigration, and arresting the illegal flow of drugs, especially “Fentynal,” into the U.S. Therefore, any assistance provided by Canada or Mexico would lead to a reversal of those tariffs.
Secondly, we stated the market’s opening would likely be the worst level of the day, so any “panic selling ” of positions early in the morning would likely be a mistake.
Both sets of advice were apropos as shortly after the market opened, Mexico agreed to send 10,000 troops to assist in securing the border, leading to a one-month pause in tariffs.
Here is the translation:
“We had a good conversation with President Trump with great respect for our relationship and sovereignty; we reached a series of agreements:”
- Mexico will immediately reinforce the northern border with 10,000 members of the National Guard to prevent drug trafficking from Mexico to the United States, particularly fentanyl.
- The United States is committed to working to prevent the trafficking of high-powered weapons to Mexico.
- Our teams will begin working today on two fronts: security and trade.
- They are pausing tariffs for one month from now.
Shortly after that, just as the markets closed trading for the day, Trump received concessions from Canada.
In other words, the trade war the media predicted would cause a massive inflation surge was over before it started. The market immediately rebounded from the early morning lows, leaving “panic sellers” in the dust.
Such is why it is crucial to turn off the media when managing your portfolio to reduce emotional mistakes.
Technical Review
The last two weeks have certainly introduced a lot of volatility into the markets. Last Monday’s
“
DeepSeek
”
announcement sent technology lower, followed by yesterday’s
“tariff”
selloff. The chart below shows the recent pickup in volatility as represented by the volatility index (
VIX
). Notably, despite the repeated volatility spikes over the last two months, volatility remains subdued.
While the day-to-day market movements can certainly increase investing concerns, it is often helpful to look at longer-term time frames to remain focused. If we look at a weekly chart of the
S&P 500 index
, the recent bouts of volatility are barely evident. The bullish trends remain firmly intact while money flows into equities are increasing. Such is why the bid under stocks remains strong for now.
Crucially, I am not discounting the risk of a larger corrective event. With markets very deviated above long-term exponential growth trends, valuations elevated, and political policy dynamics at play, there are certain risks we are paying attention to. However, we must also remain focused on what drives markets in the near term: liquidity.
As noted above, inflows into stocks remain stable, and with the bulk of corporate earnings concluding this week, the corporate share buyback window will soon be fully reopened.
As shown, buybacks steadily increased over the last four weeks and will be in full swing by mid-month.
It was also interesting to note that the bond market also saw through the “tariff scare” on Monday. While media headlines were rampant about how tariffs are inflationary, as discussed in “ Trumpflation ,” history shows they are disinflationary as they weigh on consumption or corporate profitability. This is because if tariffs increase prices, consumers buy less, reducing economic demand. If companies retain the tariff, they reduce employment, Capex, and wages to offset the retained tariff, which reduces economic demand. While tariffs may lead to a short-term price bump, the negative impacts reduce economic inflation over the longer term. Such is what the bond market was already sniffing out on Monday as yields fell on the news.
As noted, the news flow has made for a volatile two-week stretch. The question is whether we are close to a buying opportunity.
Tariffs Turmoil Creates Opportunities
The good news about recent volatility in the market is that it has reversed much of the previously aggressive overbought conditions. Furthermore, the selloff in some market sectors was very aggressive, setting up a reversal trade in the weeks ahead.
Technology is currently the most oversold sector after being one of the most overbought just four weeks ago. That selloff has pushed many companies in that sector into more deeply oversold conditions. Conversely, Communication remains extremely overbought, potentially setting up a market rotation in the weeks ahead as investors look to
“buy the dip”
in Technology.
As noted, the companies related to
“artificial intelligence”
are among the most oversold in the sector’s top 10 holdings. While there is no guarantee that the market will start pricing in more optimistic views, historically, it is a decent bet that money will find its way into more hated areas of the market as
“weak hands get wrung out.”
Conclusion
From a short-term technical view, despite headlines about
“Deepseek”
or
“Tariffs,”
the market holds support at important levels. Furthermore, money flows remain positive while the market continues a lengthy consolidation process. As shown, the market has remained range-bound for the last two months, which has worked off some of the overbought conditions. The bullish trend remains firmly intact, and despite media headlines to the contrary, there is no evidence of a bearish breakdown currently.
That does not mean that things won’t change in the future. However, using media headlines to make portfolio decisions has repeatedly turned out poorly. If the recent market volatility is weighing on you, and you “feel” you must “ do something,” take very small steps.
- Tighten up stop-loss levels to current support levels for each position.
- Hedge portfolios against major market declines.
- Take profits in positions that have been big winners.
- Sell laggards and losers.
- Raise cash and rebalance portfolios to target weightings.
As we saw on Monday, taking small steps to reduce portfolio risk now can help you weather sharp market events. Remembering that portfolio management is not an
“all or none”
process is crucial. It is about positioning yourself to minimize emotional decisions so you can find the
“opportunity that exists in crisis.”