April 3rd Market Overview

Happy Thursday.

So… these tariffs came in hot and threw a red blanket across all sectors. Today and tomorrow I expect the market to really find its footing and give some price discovery to the new tariff announcements. The tariffs are getting quite complicated imho and I'll be doing a visual write-up on that this Sunday.

Right now the market is sitting at levels we haven't seen since last September. I'm in full defense mode and looking to average into companies I love that have not only been beaten up by the tariff news but have been selling off for the past couple of months. The SLOW averaging will not start until mid next week for me, depending on price action.

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A ton of news today so today overview is a bit more detailed then normal.

Let's dig in...

Executive Summary

• President Trump unveiled tariffs far exceeding market forecasts, including a 10% baseline plus staggering reciprocal rates: China (54% effective), Vietnam (46%), EU (20%), Japan (24%), and India (26%).
  

• U.S. indices cratered, with the S&P 500 suffering its worst day since September 2022 and the small-cap Russell 2000 entering bear market territory, down over 21% from its November high.
  

• Nearly $2 trillion was erased from the S&P 500's value as decliners overwhelmed advancers six-to-one on the NYSE.
  

• Major trading partners including Canada, the EU, and China signaled countermeasures, raising concerns about an escalating global trade conflict.
  

• Analysts warn tariffs could significantly boost inflation (potentially near 5% per UBS), prompting major banks like Morgan Stanley to push back Fed rate cut expectations to 2026.
  

Market Overview

Key Market Drivers

1. Harsher-Than-Expected Tariffs Implemented: The administration enacted a baseline 10% tariff on nearly all countries effective April 5, but layered much higher "reciprocal" rates based on perceived trade imbalances.
   
   Key rates include China (34%, making the effective total 54%), Vietnam (46%), EU (20%), Japan (24%), and India (26%). Fitch Ratings estimates the aggregate effective U.S. tariff rate hit 25%, the highest in over 115 years. Analyst estimates (Evercore, Comerica, Bloomberg) converged around 22-29%, dramatically exceeding the 10-20% market expectation.
   

2. 'De Minimis' Exemption Removed for China: The rule allowing duty-free entry for shipments under $800 from China and Hong Kong was eliminated (effective May 2), significantly impacting e-commerce platforms like Temu (owned by PDD Holdings $PDD ( ▲ 4.73% )) and Shein.
   

3. Global Response & Retaliation Threats: International reaction was swift. Canada announced matching 25% tariffs on non-USMCA-compliant autos. The EU stated it's preparing countermeasures impacting €290 billion in trade if negotiations fail. China vowed retaliation to protect its interests. France's President Macron urged French companies to pause U.S. investments.
   

4. Economic Data Weakens: The ISM Services index for March fell short of expectations (50.8 vs. 52.9 forecast), indicating slowing activity. Critically, the employment sub-index tumbled 7.7 points to 46.2, signaling contraction and adding to recession fears exacerbated by the tariffs.
   

5. Investor Sentiment Extremely Bearish: Even before the tariff announcement, the American Association of Individual Investors (AAII) survey showed bearish sentiment at 61.9%, the highest since the March 2009 financial crisis bottom and the third-highest reading ever. This pessimism likely deepened significantly today.
   

Stock Spotlight

Apple $AAPL ( ▲ 2.21% ) : Shares fell sharply as 54% effective tariffs threaten Chinese manufacturing operations (90% of production). Citi forecasts 9% gross margin hit; Jefferies downgraded, warning of potential 14% cut to FY25 profit if Apple absorbs full costs.

Nike $NKE ( ▲ 1.88% ): Stock dropped significantly with half its footwear made in tariff-hit China (54%) and Vietnam (46%). Evercore warns tariffs could eliminate 80% of FY27 EBIT without mitigation.

Lululemon $LULU ( ▼ 0.49% ): Shares declined as 40% of products come from Vietnam, now facing 46% tariffs, severely pressuring margins.

Restoration Hardware $RH ( ▼ 0.51% ): Luxury retailer plunged after disappointing Q4 earnings and guidance, worsened by CEO Gary Friedman highlighting tariff concerns on the analyst call.

Five Below $FIVE ( ▲ 5.11% ): Discount retailer dropped as broad tariffs threaten its low-price business model and import-dependent margins.

Big Name Updates

Magnificent Seven Tech: Lost record $950 billion in market cap today, now down 23% from mid-December high.

Microsoft $MSFT ( ▼ 0.17% ): Scaled back data center plans globally including UK, Australia, Illinois, North Dakota, and Wisconsin.

Amazon $AMZN ( ▼ 1.49% )& Meta $META ( ▼ 2.22% ): Face indirect pressure as third-party sellers and advertisers struggle with Chinese import costs, potentially reducing platform activity.

Ford $F ( ▲ 4.07% ): Launched "FROM AMERICA FOR AMERICA" program offering employee pricing to all U.S. customers through June 2, absorbing tariff costs.

Coca-Cola $KO ( ▲ 1.43% ): Bucked the downtrend with record high as investors sought safety in consumer staples with strong brand loyalty and pricing power.

Other Notable Company News

Retail
Deckers $DECK ( ▼ 1.74% ) faces potential 600 basis point margin compression from tariffs. Dollar General $DG ( ▲ 1.43% ) gained on lower China exposure (4% vs competitors).

Banking
Western Alliance $WABC ( ▲ 0.39% ) led banking declines with a 14% drop as bank ETFs posted their largest slides since March 2023.

Auto
Stellantis $STLA ( ▲ 5.64% ) paused production in Canada and Mexico plants due to tariffs, affecting 5,400 workers.

Semiconductors
Chip ETF $SMH ( ▲ 0.15% ) fell despite tariff exemptions. Nvidia $NVDA ( ▼ 0.2% ) declined on concerns about weakened end-product demand.

Food & Beverage:
Fast-food chains like McDonald's $MCD ( ▲ 1.99% ) rose on trade-down expectations, while Starbucks $SBUX ( ▲ 0.07% ) fell.

Healthcare
GE HealthCare $GEHC ( ▲ 2.52% ) dropped on manufacturing exposure concerns.

E-commerce
 PDD Holdings $PDD ( ▲ 4.73% ) announced $13B+ investment to support merchants affected by tariffs.

Sector Watch

Bond Market

• Yields Plunge: The benchmark 10-year Treasury yield dropped significantly by 14 basis points to 4.055%.

• Dollar Weakens: The ICE U.S. Dollar Index fell sharply (-2.2%) to 101.41, its lowest closing level since October 3, 2024, as tariff impacts raised questions about the U.S. economic outlook.

• Safe Havens Strengthen: The Japanese Yen appreciated 2.5% against the dollar (strongest since Oct 2024). The Euro surged nearly 2% to around 1.11 USD, prompting a long recommendation from Citigroup targeting 1.15.

Policy Watch

• Fed Rate Cut Expectations Delayed: Tariff-induced inflation fears caused Morgan Stanley to scrap its June rate cut call, pushing its forecast out to March 2026. UBS, however, now expects 75-100bps of cuts in 2025, highlighting analyst divergence. JPMorgan downgraded emerging market currencies.
  

• Fed Officials Cautious: Federal Reserve Vice Chair Philip Jefferson acknowledged tariffs could lift near-term inflation expectations but maintained his view that long-term inflation will cool, supporting patience on policy adjustments.
  

• Administration Stance Firm: Commerce Secretary Howard Lutnick stated President Trump "is not going to back off" the tariffs, describing them as a "reordering of global trade" and downplaying exemption possibilities. President Trump insisted the markets and country "will boom."
  

• Legislative & Regulatory Actions: A bipartisan Senate bill (Grassley/Cantwell) was introduced to require Congressional approval for tariffs lasting over 60 days. The Federal Trade Commission (FTC) Chair warned companies against using tariffs as a pretext for illegal price fixing. Federal government layoff announcements hit the highest level since May 2020, linked to efficiency drives.
  

What to Watch

1. Global Trade Negotiations & Retaliation:

   • Keep a close eye on dialogues between the U.S. and key trading partners (EU, China, Canada)

   • Any signs of de-escalation could provide market relief, particularly for heavily impacted import/export sectors

   • Conversely, concrete retaliatory tariffs could deepen the sell-off and increase recession odds
     

2. Upcoming Economic Data Releases:

   • Tomorrow’s U.S. jobs report for March (consensus 140k) is now critical for gauging economic momentum

   • A significantly weaker-than-expected number could amplify recession fears already stoked by tariffs

   • Pay attention to wage growth figures as inflation indicators
     

3. Company Guidance Revisions:

   • Monitor upcoming earnings reports and pre-announcements, especially from retailers, manufacturers, and tech companies

   • Companies will need to quantify tariff impacts on margins and outline mitigation strategies

   • Listen for commentary on consumer demand resilience in the face of potential price increases
     

4. Federal Reserve Communications:

   • Future speeches by Fed officials and meeting minutes will be heavily scrutinized

   • Markets will seek clarity on how the Fed views the trade-off between tariff-induced inflation and potential economic slowdown

   • Any shift in tone regarding rate adjustment timing will be highly market-moving
     

5. Sector Rotation Opportunities:

   • Watch for flows into domestic-focused companies with limited import exposure

   • Monitor defensive sectors like consumer staples and utilities for continued outperformance

   • Track reshoring announcements that could benefit industrial REITs and domestic manufacturers

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Thanks for reading 🙂

- John