It’s only been three weeks since the stock market melted down [see: Rome is Burning] and only one week since the bond market melted down [see: Bond Market Debacle.]

Since then, both have recovered . The S&P 500 has risen over 700 points and the 10Y has shed 20 bps. So, the worst is over, right?

Then we see data such as the manufacturing outlook the Dallas Fed put out yesterday…

…and consumer confidence released on Monday…

…and the doubts seem pretty well justified.

In our last Big Picture post in November 2024, we turned to technical indicators to suggest when it would make sense to get bearish – identifying the 50-day moving average which repeatedly (6 times!) sounded the alarm over the next several months before the market finally collapsed in February.

What do the technicals suggest now that Trump’s tariff policy has been universally derided as an economic disaster for the US and its trading partners? Can markets recover while the Trump chaos we warned of has wrapped its tentacles around the global economy?

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Futures are slightly positive in the pre-market after a strong finish last week.

Readers will be shocked to learn that the administration’s announcement that hundreds of deals had been struck with trade partners might have been slightly “exaggerated.”

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Futures have been all over the map overnight, but are currently flat as algos try to figure out which superpower leader is lying through his teeth about trade negotiations.

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If we believe the narrative emanating from the White House, we might take the recent rally as a sign that the market is all better. Trump has softened his disastrous tariff rhetoric and is listening to his better angels (or at least the billionaires who got him reelected.) So is the coast actually clear?

It’s obviously a scary time to go long, given that the past several weeks are peppered with large drops. It’s also nerve-wracking to go long on the basis of a rally that’s the result of Trump’s offhand comments that he doesn’t plan to fire Jay Powell and that he will be very nice in his trade negotiations with China. Naturally, the rally began during the low-volume after hours when surprises can have much greater effect.

Can we really trust those comments or will Trump consider today’s market rally “money in the bank” for use in making questionable future policy decisions? Tariffs are obviously inflationary, but we won’t get inflation data that reflects the tariffs (announced Apr 2, after Q1 was over) until PCE on April 30 and CPI on May 13. Aside from employment and consumer confidence, we won’t get any significant April economic data until Apr 30.

The market’s 21.8% decline between Feb 19 and Apr 7 obviously earned Trump a great deal of criticism. The subsequent bounce might help his approval numbers, but it won’t necessarily heal relationships with our trading partners, restore the confidence of corporate CEO’s in terms of hiring and capital expenditures, or encourage foreign investors to buy US debt.

The highly unusual divergence between treasury yields and the US dollar is almost certainly due to the world losing its appetite for US-based assets due to high tariff rates – as well as the US stepping back from its military, economic and humanitarian leadership role. I question whether Trump squirting a little water on the fire that he started will restore the status quo.

The disruption in the bond market has caused a significant steepening of the yield curve, with the 2s10s breaking out and topping 60 bps on Tuesday. In my modeling, a breakout such as this following an inversion has always resulted in an equity selloff greater than the one we’ve already experienced. The 2000-2003 and 2007-2009 crashes are prime examples.These crashes were caused by a variety of economic circumstances in environments of overpriced equities. There’s an argument to be made that this time is different since it’s a self-inflicted wound (aka stagflation) that can be healed with a properly crafted tweet. But, it’s quite possible that the knock-on effects from Trump’s tariff policy – even if it’s modified to less drastic terms –  could usher in a full on recession that can’t be tweeted away.

Since the FOMC would be caught between a recessionary rock and an inflationary hard place, there is little chance that they would be able or willing to swoop in and rescue markets with an infusion of liquidity and/or massive rate cut. Could this be one of those situations where the market will need to experience a much bigger drop in order to reach a state of equilibrium?

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It was the market, again. This time, as the last, Trump made a seemingly offhand comment which was designed to put out the fire that he started. It was done in the low volume after-hours, when the impact would be greatest. And, it forced a great many offside traders to cover their shorts.

Like last time, it leaves markets teetering between a recovery on the one hand and a bear market bounce on the other. The deciding factor is likely to be whether Trump can ignore his nature and stick to the script.

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The 2s10s is still broken out. The 10Y is still broken out. The USD is still under pressure. Yet futures are up 50 points. At least one of these things is wrong.

Thankfully, chart patterns offer a hint.

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While tech troubles are serious enough, the bond market is being rattled by Trump’s escalating attacks on Fed Chair Jay Powell. Kevin Hassett confirmed that Trump is actively seeking ways to fire Powell ahead of the end of his term in May 2026.

The 10Y is testing its 100-day moving average again, sending the 2s10s to 60 bps – a clear break out in every respect. This is a very tough scenario for equities and could easily result in lower lows.

Higher yields, in combination with a weaker US dollar, support the observation that Trump’s trade war and policies are leading investors to shun the greenback and US treasuries.

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ES is up slightly while DJIA futures are down over 500 points on the meltdown in UNH.Meanwhile, Trump — who appointed Jay Powell in 2017 — is calling for Powell to be terminated.

“Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Trump wrote. “Powell’s termination cannot come fast enough!”

It’s surprising that it took this long, as lower interest rates would mitigate at least some of the damage that Trump’s tariffs have done to the market. As is obvious to anyone who has ever taken Econ 101, lower interest rates would also risk even higher inflation than Trump’s tariffs will cause.

So the Fed is caught between a rock and a stagflationary place. They can deal with rising inflation or with a slowing economy. Whichever they choose, the other is likely to suffer.

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Mortgage applications fell short, but retail sales beat and industrial production slumped. All in all, a mixed bag that supports the stagflation narrative. The algos aren’t happy.

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Futures are flat after stocks again failed to build on last week’s overdone rally. And, don’t look now, but SPX’s death cross finally occurred yesterday.

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