Markets Brace for “Trumpcession?”

Markets remain under downward pressure with headlines focusing on tariffs, but several other factors justify what has been happening.

AI Still the Driver for the Market?

The recent stock market sell-off has been dramatic, with the Nasdaq entering correction territory in less than a couple of weeks. In fact, it is rapidly approaching a -10% performance year-to-date, completely erasing the "Trump bump" gains driven by optimism surrounding a more business-friendly White House. While uncertainty around tariffs has been cited as a contributing factor, the decline in the tech-heavy index has surpassed that of other major indices. Last year's "Magnificent Seven" tech giants have become the "magnificent logs," with Tesla alone dropping 15% in a single day and only Meta managing to stay positive so far this year. It appears that the AI trade is still going strong – but now, it's pushing the market downward.

It is understandable that highly valued, AI-driven tech stocks would suffer disproportionately in a risk-off market environment. Investors seem concerned that higher prices due to tariffs will leave consumers with less buying power, that the Fed will keep interest rates high to combat inflation, and that all of this will result in a slowdown of the US economy and, consequently, earnings growth. This scenario has been dubbed the "trumpcession," as the "hokey pokey" of tariffs (imposing, removing, and reshuffling them) leaves businesses uncertain about tax policy and hesitant to invest until there is more clarity.

Not Seeing the Benefit

One of the justifications given for the tariffs is that they will help domestic producers. However, as the application of tariffs on the USMCA (United States-Mexico-Canada Agreement) shows, the situation is more complex. Part of the initial tariffs had to be suspended as they would have hurt US car manufacturers who rely on imported parts from Mexico, as the Trump Administration pushes to reshore production. Tesla has the highest level of domestic production among car manufacturers, yet its share price has tumbled as investors worry about the company's brand. Other US producers are facing challenges as well, with only General Motors holding steady, while rivals Ford and Stellantis have seen sales volumes drop.

And it seems the uncertainty will not abate. The US government could be headed for a shutdown over the weekend, as it appears a continuing resolution that passed the House will not be able to make it through the Senate. Typically, a shutdown does not affect the markets, but with the already dour mood, the potential turmoil and uncertainty around spending could provide a further catalyst for downside pressure in US markets. Brokerages point to less interest in "buying the dip" among traders, which could help provide a bottom to the current move, as investors seem to be keeping their powder dry amid uncertainty about the future of the economy.

Meta Hints at DCB towards Shoulder

Despite trading positive year-to-date, Meta has tumbled 20% since peaking but may see a short-term V-shaped dead-cat-bounce (DCB) to form the right handle of a head-and-shoulders (H&S) pattern. Whether prices stop at $640 and revert or continue a tad higher still points to a potential downturn unless bulls reclaim the top. Losing the $580 and then $500 support levels before bouncing might accelerate the drop, likely to delay the bounce while exposing lower regions like the $500 and $400 handles.

Source: SpreadEx / META

Key Takeaways

Markets have been under significant pressure due to concerns over tariffs, uncertainty surrounding domestic producers and fears of an economic slowdown. Despite some potential short-term relief, the overall sentiment appears to be bearish, with investors hesitant to buy the dip.