Equities
| Name | Daily Close | Daily Change | Daily Change (%) |
|---|---|---|---|
| Dow | 40,608.45 | 2,962.86 | 7.87% |
| S&P 500 | 5,456.90 | 474.13 | 9.52% |
| Nasdaq | 17,124.97 | 1,857.06 | 12.16% |
| VIX | 33.62 | -18.71 | -35.75% |
| Gold | 3,099.50 | 20.1 | 0.65% |
| Oil | 62.92 | 0.57 | 0.91% |
US MARKET
From US exceptionalism to sell everything US. Manic markets and falling off a cliff again, with US stocks giving back a large share of yesterday’s gains. Forget about end of day close prices, in the current environment you need to monitor intra-day moves. At its intra-day low, the S&P 500 was down 6.3% (down the most since March 2020) and very close to tripping the 15 minute circuit breaker. It then pared losses before a renewed sell-off in the last hour. The VIX climbed to circa 55 before retreating (volatility begets volatility). Crude back down to below US $60 per barrel. The USD sold off 1.3%, continuing with its atypical moves recently. Gold hits a record high.
So, risk appetite is shrinking yet again. All in the context of a better than expect March CPI report. But the market didn’t care as the result was all pre tariff impacts. Similar to the non farm payrolls data last week, the March CPI report was probably the most irrelevant CPI report ever released. It was happens in April and May that will be substantially more material.
By the close all three indices were well off session lows, with the S&P 500 was down 3.4%, the Nasdaq 100 down 4.2%, the Dow Jones Industrial Average down 2.5%, the Russell 2000 Index down 4.3%. Big tech, energy, and chips lead the market down. The Mag 7 were down more than 5%. UMich Consumer Sentiment out tomorrow which is at least real-time, notwithstanding that how consumers feel is different to how they spend.
So, what did we get yesterday. Predominantly short covering (a lot of heavily shorted stocks rallied significantly) exacerbated by tight liquidity, algorithmic trading, and retail buyers (who have actually been buying leveraged ETFs – go figure!) all feeding into the unprecedented jump. Reputedly there was very little buying from long-only institutional buyers. With the dust having settled, the markets are reflecting the sober realisation that tariffs are still in place and perhaps the realisation that tariffs on China imports are actually 145%, not 125%, have added to that sobriety.
Even with 10% baseline of tariffs, that’s an estimated hit to GDP in 2025 of around 1.5% and it is estimated to increase PCE inflation by about 1%. So in that scenario, the US barely skirts a recession.
First quarter earnings will be a backward looking factor. Strategists are expecting growth of about 7% year over year for earnings, but the market is going to be very focused on company commentary. Guidance may get withdrawn (as per Delta Airlines, CarMax and down 17% today), and which to investors is as alarming as a downgrade, or guidance could definitely be lowered. So first quarter earnings could add some volatility to the mix. Big banks kick off earnings season on Friday, when JPMorgan Chase, Wells Fargo and Morgan Stanley report quarterly results. The JPMorgan Chase earnings call will be heavily focused on. For the earnings season as a whole, look out for any messaging on Capex push back or head count reductions – both are negative signals.
In terms of S&P 500 earnings for 2025, analysts are forecasting 9% earnings growth over 2025. However, even at its lows, the market was pricing in 15% earnings growth. Tell me that is not significant downside risk.
On the topic of China, tariffs on Chinese imports are now at least 145%. That includes both a 125% rate that covers “reciprocal” duties as well as levies imposed on China for retaliating against US import taxes, according to a White House memo. It also encompasses a 20% rate imposed by Trump earlier this year over fentanyl trafficking. To give an idea of how imports from China have become prohibitively expensive, Apple is reported to have airlifted an estimated 1.5 million iPhones from India over night.
Interestingly, money market funds – heightened inflows are a canary in the coalmine sign. But money markets have been relatively stable, so take that as a good sign – the market is not in crisis mode.
Finally, in yet another irony, shoot-yourself-in-the-foot example, new factory builds in the US over the last 3 years have exploded. But we are now hearing news that plans for further builds are now on hold. That is what happens when you introduce distortionary policies (differential tariff rates). And all recessions are started by a sharp decline in investment rather than with the consumer.
LOCAL MARKET
The S&P/ASX 200 Index recorded its best day in five years as it surged 4.5 per cent on Thursday, leaving the local benchmark just $70 billion shy of its value the day before US President Donald Trump launched his global trade war. The S&P/ASX 200 Index rallied 4.54% to close at 7,710 on Thursday. Commodity-linked stocks led the rebound in Australian markets. BHP Group rose 5.7%, Fortescue Metals climbed 6.2%, Woodside Energy advanced 4.7%, Pilbara Minerals jumped 12.3%, and Mineral Resources gained 17.8%. Financials, consumer, and technology sectors also posted strong gains, with Macquarie Group up 6.1%, Aristocrat Leisure rising 5.7%, and Xero adding 6.5%.
While Thursday’s rally provided investors with some reprieve after days of relentless selling, strategists are swift to point out that the last time Wall Street experienced rebounds of this magnitude was during the 2008 global financial crisis, the COVID-19 pandemic in 2020 and the 1987 crash. When markets rise 10% in a day it is not a sign the markets are healthy.
What we got yesterday in the US, and which the Australian market blindly followed, was predominantly short covering (a lot of heavily shorted stocks rallied significantly) and algorithmic trading, all feeding into the unprecedented jump. That is traders that were positioned for incremental downside leading to a recession. Reputedly there was very little buying from long-only institutional buyers. With the dust having settled in the US, the markets overnight were reflecting the sober realisation that tariffs are still in place and perhaps the realisation that tariffs on China imports are actually 145%, not 125%, have added to that sobriety.
In what will have implications for the likes of Woodside, looks like oil’s recovery was short-lived. West Texas Intermediate crude futures plunged by as much as 5.8% to once again sit at a four-year low after posting the biggest one-day gain since October last session. The commodity appears to be taking cues from weakened broader markets and another significant escalation in the Trump administration’s actions against China, a major crude-importing economy. The triple threat of OPEC+’s anticipated output hikes, demand-sapping tariffs and recession fears puts $50-a-barrel Brent within reach.