In Trump We Trust

There is no sign of panic in markets because investors widely assume Trump has things all under control. If they're wrong about that, the costs will be totally unaffordable.

Since I am usually bearish on markets, I thought for once I would explain what it would take for me to believe these markets have put in a tradable bottom. Three things have to happen for markets to bottom:

Speculator capitulation
Trump capitulation
Fed capitulation

First off, compare today's market scenario to the last bear market in 2022. Currently, the underlying technical damage is at least as bad if not worse than 2022. Rates and inflation are as high as 2022 and now Trump's trade war is causing the Fed to take a wait and see approach. Meanwhile, the trade war has caused consumer confidence to collapse down to the 2022 lows which was a multi-decade low for consumer confidence.

Below we see small caps have now surpassed their initial 2022 low from the level at which the first oversold bounce took place. The question on the table is - was the Friday end of week bounce the beginning of a multi-week rally. I have shown on Twitter that the pattern of a late week bounce on Friday has now taken place three weeks in a row, each prior time a new low came on Monday. Also during March 2020 there were massive Friday rallies to be followed by next week crash.

This decline in regional banks is reminiscent of March 2023. I don't have to tell anyone that if there is one failed bank then this market is totally bidless.

There is no margin of error now for consumer confidence. Consumers at all income levels are now pulling back.

As for my first rally criteria - speculator capitulation, there is no sign yet of speculator capitulation/fear

VIX is lower than 2022
Put/call ratio is lower than 2022
Nasdaq capitulation volume is lower than 2022

I've shown the VIX many times on Twitter. Here we see the total put/call ratio has been trending down since the August crash despite large cap momentum having just broken and backtested the 200 dma for the first time since 2023.

The second criteria for a tradable market bounce is Trump capitulation in the trade war. There is no sign of Trump reversal as this week he was doubling down on European tariffs. The White House repeatedly said this week that the stock market is not their primary concern. Even worse, "reciprocal tariffs" are now planned for April 2nd. I predict this market will be a smoking crater by the time reciprocal tariffs come into effect.

"Trump specifically said he would not change his mind about enacting sweeping “reciprocal tariffs” on other countries that put up trade barriers to U.S. goods. The White House has said those tariffs are set to take effect April 2."

Third, there is also no sign yet of Fed capitulation on short term rates. The Fed is widely expected to keep rates unchanged this week as they continue to assess the burgeoning impacts of the Trump trade war on inflation.

"In an economy wracked by uncertainty, one thing seems virtually guaranteed: the Federal Reserve will leave its key interest rate unchanged when the central bank's policy committee meets Tuesday and Wednesday."

I showed this chart of the high yield spread, on Twitter. Below we see that the spread is well below levels that would suggest a Fed capitulation to support markets.

I also predict that by the time the Fed is required to capitulate, they will have to reverse policy on short-term rates and restart QE. The latter of which is something that is not even being discussed by anyone.

In summary, Wall Street is betting that Trump is going to capitulate before this gets out of hand.

The problem is that when too many people share the same delusion, it's highly unlikely to happen.

What's more likely is massive crash followed by hedge fund liquidation on the BofA trading desk. Followed by an assessment of who should still be working at the investment bank.