Good morning,
A unique market signature of this administration has been the recurring “Deep V’s” — sharp, fast plunges in risk asset prices followed shortly by equally steep recoveries. Friday’s drop (-2.7% on the S&P 500 Index), triggered by the threat of “massive” tariffs on China, is being partially unwound this morning (futures up +1% at 8am ET) after a more conciliatory weekend post from Donald Trump.
Will the market claw all the way back and resume its upward trajectory? Possibly — though perhaps not as quickly as in past “V” recoveries. While Friday’s selloff was driven by Trump’s hard line on China, the magnitude of the decline was likely amplified by other forces: heavy leverage in the highly speculative crypto space, and a growing sense that the AI trade had run too far, too fast.
Historically, plunges like Friday’s rarely end in a single session. But with this administration, history keeps getting rewritten. As unlikely as it sounds, the market may quickly stabilize early this week — perhaps at a modest discount to pre-plunge levels — and shift its focus to earnings season, which begins tomorrow with major bank reports. Investors will search for private company insight into labor conditions and pricing trends (inflation) in the absence of government data (shutdown), all leading up to the next Fed meeting. In other words: back to “normal.”
I’ll be attending a conference in Chicago from Wednesday through Friday and will follow up later in the week with an update on how markets digest last Friday’s shenanigans — it just won’t arrive at the usual early-Friday hour.
Be well,
Mike