Trump’s Policy Reversals Signal a Potential Double Bottom for the Market
Last week's financial market was truly spectacular, though it still fell short compared to the face-changing Trump. We previously speculated that Trump would look for a way to step down, thereby helping the market stabilize and rebound. Although his final actions did indeed help risk assets find a bottom, his rhetoric of "I haven't surrendered, these are all strategies" and the weekend hints about "exemptions" strongly suggest that a second market bottom is highly probable1.
The Failed Tariff Strategy
Looking at the developments on the tariff issue, although things didn't unfold exactly as anticipated, the 90-day postponement essentially represents a delaying tactic forced upon the US after its original strategy failed. Judging from China's rapid responses and countermeasures, Trump's cards carry no destructive power and were likely seen through early on. Comparing the caliber of the current US administration's top leadership with previous Democratic administrations, one can only say that the former Democratic strategists were "on a completely different level." With "win, win again, winning bigly" and other such "imported" products deeply entrenched in the White House, what capacity and means does the US still have to squeeze the globe?1
Treasury Yields and Economic Fundamentals
In terms of asset performance, US bonds and US bond yields, which strike at the most vulnerable point, disrupted American strategy with their volatility last week. Although I don't believe China would or needs to massively sell US Treasury bonds to push the 10-year yield above 5%, this intangible pressure has already given Trump, who hopes for low interest rates and low debt costs, a headache. Finally, the core of MAGA lacks fundamental support - the idea of bringing manufacturing back to the US sounds good, but after industrial shifts spanning over a decade or even decades, reversing time is not only impossible but would take at least 10 years to accomplish. However, does Trump have ten more years? At the current rate, even next year's midterm elections might be tough to withstand1.
The chart shows Micro 10-Year Yield Futures trading around 4.458 with recent movement between approximately 3.500 and 4.5001.
Market Performance and Technical Analysis
Returning to the market itself, US stock indices experienced epic rebounds last week. However, historical performance suggests that after similar violent upswings, markets typically reach new lows. In other words, rebounds triggered by short-term news lack the power to reverse trends, and after hitting resistance and falling back, the market will likely need a new low or double bottom to truly stabilize. Throughout this process, there will certainly be back-and-forth on the news front, just as Trump won't easily surrender or admit defeat. Using the S&P as a benchmark, the upward rebound is expected to face significant pressure around the 5800 level. Under the dual technical effects of support/resistance conversion and previous rebound highs, the bulls are expected to turn south1.
The chart displays S&P 500 E-mini Futures showing recent upward movement with current levels around 5,437, after having reached nearly 6,0001.
Recession Concerns and Trump's True Motives
As for another topic the market is concerned about—recession—the risk isn't actually as great as it appears, provided Trump isn't truly stubborn enough to go all the way. A businessman whose goal isn't to make money but to leave a mark in history (or perhaps infamy) would be the real trouble. However, examining the behavior of Trump and his family in this round of market movements and previous cryptocurrency market activities, we are more inclined to believe they follow the "business is business" direction1.
Conclusion
The current market dynamics reveal a complex interplay between political posturing and economic reality. Trump's approach to trade policy reflects a tactical flexibility that prioritizes appearance over substance. While his rhetoric may suggest unwavering commitment to certain positions, his actions indicate a pragmatic approach when faced with market realities. As the saying captured at the end of the original article suggests: "Principles may be on the lips, but business is in the heart"
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