No one really expects the FOMC to change interest rates, but a great deal of attention will be paid to Powell’s comments, if any, on the impact tariffs will have on the economy and the Fed’s policy.

The overnight ramp job is ebbing, with futures currently about 10 points higher.

Our charts turned bearish almost a week ago, though there has been less clarity on the extent of a pullback.

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Futures are off almost 1% in advance of tomorrow’s FOMC announcement and press conference.

While traders are nearly unanimous that there won’t be a rate cut tomorrow, there is less certainty as to how explicit Powell’s comments on the impact of tariffs will be. Many corporations are forecasting significant declines in earnings or pulling their forecasts all together.

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While the SPX was oversold at its April lows, there was a reason for the selloff. That reason, Trump’s disastrous trade war, is still with us. Yet, the market is back to where it was when the tariffs were announced after nine straight daily gains, the longest winning streak in more than 20 years.

Friday’s rally was especially dubious as it was based, in our opinion, on falsified employment data. We’ll get ISM services data (watch the employment component, which fell from 52.1 in Feb to 46.2 in Mar) and an FOMC meeting and rate decision this week.  We’ll soon see whether or not the rally’s longevity is warranted.

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I’ll admit it, I’m pissed. I don’t often hop on my digital soapbox, but after this morning’s outrageous jobs report it’s just too hard to keep it to myself.

I’ve taken the opportunity to speak to numerous business owners over the past month about their reaction to Trump’s tariff nonsense. They have uniformly been extremely negative, with many wondering if they’ll be able to stay in business when tariffs erase their already slim profit margins.

So, it’s surprise that virtually all of the hiring surveys since tariffs were announced have looked like this.

It was therefore quite shocking to see the Bureau of Labor Statistics, a division of the Department of Labor, release a jobs report that was much more positive than virtually anyone on Wall Street or in academia had forecast.

It so shocked the markets that futures soared up to new highs despite very disappointing earnings outlooks from both AAPL and AMZN after the close yesterday.  Truly a WTF moment, until you think back to January 25.

Trump was inaugurated on Jan 20. Five days later, in one of his first acts as president, Trump fired multiple inspectors general via Friday night emails. These are the people who are supposed to ensure that the government plays by the rules. The person who oversaw the Department of Labor and thus the BLS was this guy.

Thus, the person who might have raised the alarm about DOGE’s chainsaw firings, labor related crimes, or, say, artificially inflating the jobs numbers, was dismissed. Never mind that he had an exemplary military and civilian career, succeeding Scott Dahl who was forced out in 2020 after warning Congress about massive fraud related to the pandemic handouts during Trump’s first presidency.

But, hey, all’s fair in love and politics – a world where the veracity of economic data just became more questionable than ever. The irony is that even if this data were true, which it is definitely not, it would suggest that the economy is doing just fine and that inflation is a more serious concern than employment. It’s the sort of scenario that would suggest the Fed not cut interest rates.

Naturally, Trump renewed his criticism of the Fed for not cutting rates.

Why would anyone be pissed about this? After all, a rising stock market is great for the country – or at least stockholders. But, a market that relies on falsified data is not a legitimate market at all. Such illegitimate markets seriously distort the feedback loop determining hiring and capital allocation. It also moves us that much closer to the kind of banana republic BS that the US used to oppose.

For example, a business owner who relies on the bullish message the market is sending might be inclined to expand their workforce or operations as the economy is entering a recession – thus compounding the negative impacts to his business and increasing the risk that the recession is even worse.

A market which is easily manipulated is also, obviously, going to be more frequently manipulated – enabling those at the controls to bend it to their own purposes instead of serving the intended purpose of markets – to facilitate the exchange of financial assets on a free and fair basis.

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Futures are up sharply on the first day of May – often a dramatic month historically speaking (“sell in May and go away.”) The algos are certainly protecting ES’ SMA50…

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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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