April 4th Market Overview

Happy Friday.

A particularly unpleasant day in the markets. The market is rushing to price in the new tariffs. We're seeing both panic selling and real worries happening at the same time. It will take a week or so to see price discovery settle.

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Let's dig in...

Executive Summary

• China announced 34% tariffs on all US goods effective April 10, along with adding companies to its “unreliable entities list” and launching an antitrust probe into $DD ( ▲ 3.53% ) 
  

• Major indices suffered their worst daily percentage drop since June 2020, with the Nasdaq officially entering bear market territory
  

• Fed Chair Powell indicated a wait-and-see approach on interest rates despite market turmoil, noting tariffs will likely cause “higher inflation and slower growth”
  

• JPMorgan raised global recession probability to 60% as markets brace for potential further escalation over the weekend
  

Market Overview

Key Market Drivers

1. China’s Swift Retaliation: Beijing announced 34% tariffs on all US imports starting April 10, with Evercore ISI noting the timing appears deliberately designed to inflict market damage while Chinese markets were closed for a holiday.
   

2. Fed Staying on Sidelines: Chair Powell signaled the central bank needs more clarity on tariff impacts before considering policy adjustments, stating officials are “well positioned to wait for greater clarity” despite acknowledging tariffs will cause “higher inflation and slower growth.”
   

3. Extreme Risk Aversion: The CBOE Volatility Index ($VIX) surged above 40, reaching levels not seen since August 2024. NYSE declining stocks outnumbered advancers by a staggering 17-to-1 ratio.
   

4. Strong Jobs Report Overshadowed: March employment data showed 228,000 jobs added (versus 140,000 forecast), but traders largely disregarded this positive economic indicator amid trade war concerns.
   

Stock Spotlight

Apple $AAPL ( ▲ 2.21% ) faced severe pressure given its significant China exposure. The company has approximately 80% of production capacity and 90% of iPhone assembly located in China, creating substantial supply chain vulnerability.

DuPont de Nemours $DD ( ▲ 3.53% ) was hit with a double blow as China opened an antitrust investigation into the company alongside the broader tariff announcement, intensifying pressure on the chemical manufacturer.

Boeing $BA ( ▲ 1.56% ) and Caterpillar $CAT ( ▲ 1.59% ) led Dow component losses as major exporters to China. Both companies face significant headwinds from potential lost sales and disrupted supply chains.

Tesla $TSLA ( ▲ 0.02% ) dropped sharply as trade tensions compounded existing concerns about Q1 delivery disappointments. JPMorgan reiterated an underweight rating with a $120 price target, citing "unprecedented brand damage."

NVIDIA $NVDA ( ▼ 0.2% ) declined despite its dominant AI position, reflecting broad concerns about global tech supply chains and potential sales impacts in the Chinese market.

Big Name Updates

Amazon $AMZN ( ▼ 1.49% ) is testing a new AI feature called "Buy for Me" that lets users purchase items from third-party websites without leaving the Amazon app. Goldman Sachs reiterated an outperform rating with a $255 price target, noting the company has "multiple offset levers" to manage tariff impacts.

Major financial institutions including JPMorgan $JPM ( ▼ 0.63% ), Citigroup $C ( ▲ 2.56% ), Morgan Stanley $MS ( ▲ 0.92% ), and Wells Fargo $WFC ( ▲ 0.94% )tumbled amid concerns that the trade war could trigger economic contraction.

Bitcoin $BTC.X ( ▲ 2.06% ) outperformed equity markets, rising approximately 1.8% according to Coin Metrics. Jeff Kilburg, founder and CEO of KKM Financial, suggested this divergence indicates equity markets may be overreacting to trade tensions.

Other Notable Company News

Intel $INTC ( ▲ 2.89% ) and Taiwan Semiconductor $TSM ( ▼ 0.79% ) have tentatively agreed to form a joint venture, with TSMC potentially taking a 20% stake in Intel's chipmaking operations, according to The Information.

Phillips 66 $PSX ( ▲ 0.45% ) received attention after activist investor Elliott Management claimed shares could nearly double if the company spins off its midstream business and refocuses on refining operations.

Petrochemical firms Dow Inc. $DOW ( ▲ 1.58% ) and Lyondell Basell Industries $LYB ( ▲ 0.98% )were downgraded by JPMorgan to neutral. Analyst Jeffrey Zekauskas cited concerns that China is a top destination for US polyethylene exports, making these companies particularly vulnerable to tariffs.

ServiceNow $NOW ( ▲ 1.8% ) saw BMO lower its price target to $990 from $1185 while maintaining a buy rating, citing federal spending slowdown and tariff-driven GDP risks.

Estée Lauder $EL ( ▲ 0.65% ) suffered as a major importer into China now facing substantial new tariffs.

Multiple companies postponed IPO plans amid market turmoil, including Klarna, StubHub, and financial technology company Chime.

GameStop $GME ( ▲ 2.2% ) rose nearly 3% in after-hours trading Thursday after CEO Ryan Cohen increased his stake to 37.3 million shares from 36.8 million.

Sector Watch

Bond Market

• Treasury yields fell below 4% as investors sought safety

• Traders now price in 50% probability of five Fed rate cuts this year

• Credit spreads widened, signaling increased economic stress

• BlackRock's Rick Rieder stated: "The world has changed, and economic conditions have changed"

• Rieder noted declining CEO confidence will impact hiring, capital expenditures, and M&A activity

Policy Watch

• President Trump posted on Truth Social: "policies will never change" despite market reaction

• Former Goldman CEO Lloyd Blankfein suggested maintaining the 10% baseline tariff while delaying reciprocal tariffs by six months

• Republicans in Congress reportedly discussing raising the top tax rate to 40% for millionaires

• Japan's Prime Minister seeks meeting with Trump to discuss tariffs

• Kremlin confirmed no immediate plans for a Trump-Putin call
  

What to Watch

1. Weekend Developments in the US-China Trade Dispute:

   • Potential additional retaliatory measures from either side

   • Market positioning ahead of April 10 implementation date

   • Statements from administration officials that might signal flexibility
     

2. Upcoming Corporate Earnings Season:

   • Companies with significant China exposure will face intense scrutiny

   • Listen for guidance changes specifically citing tariff impacts

   • Early reports will set the tone for how seriously markets price in trade war effects
     

3. Fed Response Indicators:

   • Watch for any emergency meetings or coordinated central bank actions if market stress intensifies

   • Comments from regional Fed presidents may signal evolving internal debates

   • Economic data releases will be viewed through the lens of recession probability
     

4. Congressional Reaction:

   • Potential legislative pushback against executive tariff authority

   • Bipartisan efforts to moderate the trade approach

   • Growing pressure from affected industries and constituencies

P.S. 

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Thanks for reading 🙂

- John