Slowly at first, and then suddenly
The cash S&P 500 index closed Friday ~9% below last Friday’s close, with virtually all of those losses coming after Trump’s Liberation Day ceremony. The index is down ~17.5% from mid-February’s record highs, and outside of the covid crash in 2020, the two-day performance on Thursday/Friday was the worst since the GFC.
In 2022, the cash S&P 500 Index fell ~27% from January’s record highs to October’s lows.
The Nasdaq 100 futures are down ~22% from February’s record highs. (In 2022, the NAZ fell ~37% from January highs to October lows.)
The Toronto Composite Index is down ~10% from January’s all-time highs.
The Euro STOXX 50 Index (which outperformed the S&P in January and February) is down ~15% from early-March record highs.
The Nikkei 225 Index is down ~20% from January’s highs and 24% from July 2024’s all-time highs.
The iShares China Large-Cap ETF is down ~15% from 3-year highs reached in March.
S&P option volatility soared following the Trump ceremony.
The US Dollar Index—the DXY—hit 23-year highs in January (X a couple of weeks in 2022) and fell ~8% to this week’s lows. (The trade-weighted USD Index, with a greater weighting of Asian currencies, hit all-time highs in January.)
The Swiss Franc soared ~4.3% following Trump’s ceremony. This could be a traditional safe-haven bid, but ultra-low Swiss interest rates made the Franc a carry trade funding source, and there could have been a scramble to cover shorts. (Remember a few years ago when Eastern Europeans, who faced high domestic interest rates, used to take on Swiss Franc mortgages to save a few percentage points in interest payments, but they were severely stung by FX losses.)
NYMEX WTI futures fell nearly $12 (~17%) from Wednesday’s high to Friday’s 4-year lows. Virtually all of those losses came after Trump’s tariff ceremony.
COMEX gold rallied to record highs of ~$3,200 immediately following the ceremony but closed ~$150 lower on Friday.
COMEX silver hit 13-year highs last week at ~$35.50 but dropped more than $6 (~17%) to Friday’s lows, with virtually all those losses coming after the ceremony.
The silver/gold ratio rallied to ~103 following the ceremony as silver tumbled while gold held relatively steady. The ratio of 103 (ounces of silver needed to buy one ounce of gold) is the highest in at least fifty years, outside of a brief spike during the covid crisis.
COMEX copper hit all-time highs last week at ~$5.35, but fell ~$1 to Friday’s close, with two-thirds of those losses coming after the ceremony.
This copper chart was released before Trump’s tariff announcements and shows the premium of NY copper over London copper. In last week’s TD Notes, I was skeptical of NY copper prices.
The Goldman Sachs commodity index closed at six-week highs on Wednesday but tumbled ~10% following the ceremony, with energy and metal prices down hard.
Treasury bond futures rallied nearly seven handles from the late March lows to Friday’s highs, with almost half of those gains coming after the Trump ceremony. On Friday, the yield on the 10-year dropped to a six-month low of ~3.9%.
With the S&P at all-time highs in mid-February, 3-month SOFR futures were pricing virtually no cuts from the Fed this year. At this Friday’s highs, the December 2025 SOFR contract was pricing more than four cuts this year.
Is this what “Detox” looks like?
Last week, I wrote:
I believe that markets are now underpricing not only how much the world as we know it will change but also how fast it will change. As Papa Hemingway wrote in The Sun Also Rises, “slowly at first, and then suddenly.”
We have an angry man determined to make significant changes in the world, and his favourite tool is a blunt instrument. There will be unintended consequences, misunderstandings and “collateral damage.”
There is a lot of leverage in our financial world, and I expect people will discover that leverage is a double-edged sword.
Where there’s risk, there’s opportunity, but the old saying is that everybody loses in a bear market.
When I watched Trump’s Liberation Day ceremony and tried to understand the essence of his argument, I remembered that back in the 1990s, when WTI traded between $20 and $40, I wondered if the “true cost” of oil was closer to $100 if you factored in the cost of the US military protecting the trade routes.
In addition, I have long understood that many countries, particularly Asian countries, have followed mercantilist policies and deliberately kept their currencies low (to remain competitive with China?) so they could export to the USA.
Here’s a quote from my friend Martin Murenbeeld in this week’s Gold Monitor:
…Liberation Day, in one form or another, has long been in the coming. Inevitably, there would be some US reaction to predatory/mercantilist foreign trade, currency and investment practices.
Well, here it is. Liberation Day has arrived. Trump is telling the world that the US will no longer be “picking up the tab.” He’s using a “blunt instrument” to deliver his message, and he may have been better able to achieve his goals through diplomatic negotiation without the chaos, but that is not his style.
Over-levered markets didn’t like Trump’s shock, and there has been widespread criticism of him and his policies, but where do markets go from here?
The principal markets traded huge volumes last week, but despite the surge in options volatility, it didn’t seem like panic selling. To paraphrase the Heisenberg report (he is not a Trump fan!), if Trump “stays cool,” markets may bounce next week, but if he “adds fuel to the fire,” markets could open limit down Sunday afternoon.
Trump/Powell
Trump used social media this week to demand Powell cut interest rates. Powell demurred, saying, in effect, that the Fed had an obligation to keep inflation expectations low to prevent “one-time” increases in inflation from becoming an ongoing problem. The markets won’t be happy if Trump increases the pressure on Powell.
Bonds rallied this week on a “flight to safety” from falling stocks and on mounting concerns of a recession. Possible higher inflation from higher import costs doesn’t seem to be a concern for now.
Gold held relatively steady and even rallied to new highs immediately after Trump’s ceremony, but it closed red for the week after taking out Thursday’s lows on Friday. If stocks fall further next week and liquidity becomes an issue, selling pressure on gold could increase.
The US Dollar weakened sharply after the ceremony, falling to 6-month lows, but it was bid higher late Friday as stocks continued to decline. If financial markets stay stressed next week, the USD could catch a flight to safety bid.
Energy stocks were hit hard this week, as though recession is inevitable.
My short-term trading
I started this week short WTI and short CAD puts. I was stopped on my short WTI early Monday and missed the huge drop later in the week.
I kept my short CAD puts, which expired out of the money on Friday, so my gains there covered my loss on the WTI trade.
I bought the S&P on Monday and covered Tuesday for a gain of 40 points. I bought the S&P after it tumbled following Trump’s tariffs, looking for a bounce, but there was minimal bounce, and I covered for a slight loss.
I shorted gold on Tuesday and was quickly $30 ahead on the trade, but the market rallied back later in the day and I covered for a b/e. The market rallied another ~$60 on Trump’s speech, so I was happy not to be short, but I missed the breakdown to Friday’s close.
I didn’t trade on Friday, so I went into the weekend flat. Despite all the wild price action, my P+L for the week was about flat.
The Barney report
The weather has been getting warmer, and Barney and I have had some great walks in the nearby forests. He loves to jump into a ditch full of rainwater and run with a stick in his teeth. Here he is, just as happy as he can be – soaking wet and carrying a big stick!
The Moneytalks podcast
I hosted the show again this week (Mike Campbell is on vacation in Europe), and I was thrilled to have John Johnston (JJ) as my lead-off guest. I have no problem saying JJ has forgotten more about gold than I have learned trading gold for over 50 years. JJ and I worked for ContiCommodity in the 1970s/early 1980s (it was one of the largest US commodity brokerage firms then), but he was on the NY floors while I worked for Conti in Vancouver and California, and we never met. I subscribe to his twice-daily Substack letter – Market Vibes – jj745.substack.com – and highly recommend him to my readers. You can listen to the show here. A 36-minute video of my interview with JJ is available here: Gold’s Role in Today’s Financial Landscape – YouTube.
The Archive
Readers can access weekly Trading Desk Notes from the past eight years by clicking the Good Old Stuff-Archive button on the right side of this page.
Subscribe: You have free access to everything on this site. Subscribers receive an email alert when I post something new, usually four to six times a month.
Victor Adair retired from the Canadian brokerage business in 2020 after 44 years and is no longer licensed to provide investment advice. Nothing on this website is investment advice for anyone about anything!
