Volatility Rules

Stocks dip after yesterday's relief rally... New day, new tariff numbers... Trump doesn't want to be Hoover... View from the 'other side'... Good news, bad news on inflation... Early tariff impacts...

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The day after...

Yesterday afternoon, President Donald Trump announced a 90-day "pause" on seriously high tariff rates for most countries. The markets went wild in the final hours of trading. And we told you to keep expecting volatility...

Exhibit A: today...

This was one of the worst single days during the market correction since February. The major U.S. indexes were down between 5% and 6% intraday, every major S&P 500 sector was lower... and gold (up nearly 3% to around $3,175) was about the only thing that rose in value.

The CBOE Volatility Index, or VIX, rose back to above 50 intraday – extremely high and above where it was before Trump announced the pause yesterday afternoon.

Things got a little better by closing time... The S&P 500 finished 3.5% lower and the tech-heavy Nasdaq Composite Index was down more than 4%. But only one major sector – consumer staples – finished up, barely by 0.3%, and the VIX remained near 40, up 20% for the day.

Trump's breaking news yesterday certainly provided at least some big short-term relief to the markets. It was an "all-time record day," he said in the Oval Office yesterday... Indeed, it was among the biggest one-day gains for the S&P 500 in history. But will it last?

Over the longer term, there is a good case to be made that odds favor good returns for stocks come a year and two from now.

(We'll plan to get into some more about this next week... But check out yesterday's Health & Wealth Bulletin essay by senior analyst Jeff Havenstein and Brett Eversole's DailyWealth piece today for the case for strong one- and two-year returns from today.)

But in the shorter term, I (Corey McLaughlin) hesitate to make a surefire prediction other than to expect choppy markets until further notice.

It's possible that earlier this week will go down as a significant low for U.S. stocks, but that's if things get "less bad" on expectations for the economy from here.

That's simply a bet – and not a particularly compelling one – given continued significant uncertainties. But that also doesn't mean it's time to go all out, either.

Remember that big moves higher tend to follow big moves lower, and vice versa. Let the high-quality stocks we recommend continue to compound your wealth. And hold hard assets like gold.

But this is also just one view. I don't have all the answers or speak for every Stansberry Research analyst.

Fast and loose numbers...

The major indexes opened down between 2% or 3%... Then they took a turn for the worse around the time the White House "clarified" that total new tariffs on China in 2025 are actually 145%, rather than 125%. That's because the 125% everyone talked about yesterday is on top of a 20% fentanyl-related tariff that Trump previously imposed on China.

In other words, today came word that there was another 20% extra cost on Chinese goods for everyone to consider. The White House may feel it's fine to throw out different numbers every day – perhaps as negotiation tactics, or not. But Wall Street has clearly been reacting to updated hard numbers along the way, even if they don't last.

During any other time in history, news of 20% in additional tariffs on imports from the world's second-largest economy to the world's largest likely would be a major market-moving event. Today was no different, and it happened to come amid an already-volatile period.

I suspect we're likely to see more swings in both directions as investors consider questions from "will we have a terrible recession?" to "what's this mean for inflation?" to, more quietly, "will the U.S. and China agree to a mutually beneficial major trade deal?"

Those are big questions.

The 'good' news: Trump doesn't want a financial crisis on his watch...

As we wrote just on Monday...

Trump keeps saying he doesn't really care what the stock market is doing. But he also said in early 2024 that he didn't want to be Herbert Hoover, the last president to preside over a (disastrous) tariff war. One of those things will have to give, but it's not clear yet which one.

It's (a little) clearer today which one...

His pivot wasn't so much about stocks, though they did matter. ("Hopefully it continues," Trump said yesterday of the market's rise. "I think it should.")

But it sounds like the trigger for a move was about the bond market. It's a concern that stems assuredly from the influence of Treasury Secretary and hedge-fund veteran Scott Bessent. We noted a few months ago that the 10-year yield is the chart Bessent has been telling Trump to watch as an indicator of how his plans are being interpreted.

"He and I are focused on the 10-year Treasury, and what is the yield of that," Bessent said in February, and as we continued...

The 10-year Treasury is the most popular bond-market benchmark in the world.

Depending on how you look at it, the 10-year yield can be an indicator of economic-growth expectations, inflation, and risk appetite, and is definitely a mix of them all.

If investors expect growth and inflation, they'll demand a higher fixed return on bonds to keep up with a growing stock market and outpace inflation.

And wouldn't you know, Trump yesterday acknowledged that even just a few days of apparent bond market instability – with the 10-year yield touching 4.5% amid a multiday sharp move higher – was enough to push him toward a "pause." (He also said yesterday that he'd been considering one for some time.)

Trump also apparently listened close to an interview that Jamie "the Hurricane" Dimon did on Fox Business yesterday in which the JPMorgan Chase CEO said a recession was "likely," and "it could get worse."

The Wall Street Journal reported last night, albeit citing anonymous sources, that Trump told advisers that he essentially didn't want to go down as a president who presided over a financial crisis...

Trump played his cards close to his vest. He told advisers that he was willing to take "pain," a person who spoke to him on Monday said. He privately acknowledged that his trade policy could trigger a recession but said he wanted to be sure it didn't cause a depression, according to people familiar with the conversations.

So, if you piece all this together, a substantial stock market dip wasn't enough to make Trump "pause" tariffs. But it's evident by his actions yesterday that he doesn't want to be known for crashing the entire economy, either. OK.

Importantly, though, this is something other countries can now bank on in negotiations. That's probably good news in the short term for the stock market, but it also means Trump may reset trade deficits by less than he seems to want.

(Meanwhile, Congress keeps on spending... and Department of Government Efficiency leader Elon Musk said during a Cabinet meeting today that his team should reduce federal spending by $150 billion in fiscal year 2026. That's not insignificant, but well short of a $1 trillion or $2 trillion goal.)

And there's still the China thing...

As our friend Brendan Ahern of KraneShares wrote in today's edition of his daily China Last Night newsletter, Chinese ministry and foreign officials held press conferences today "reiterating that China will not back down, though left the door open for US negotiations."

Brendan points out that the Chinese government's position is "far stronger than realized" because of a misperception that more than 1 billion Chinese people working in factories depend "entirely on trade with the US."

So, if you're wondering why China says it will "fight to the end," this might be it.

Stansberry Research analyst Brian Tycangco, an expert on Asian markets, has hit on a similar point in a post on social platform X...

China isn't complaining that scores of companies have moved lower cost manufacturing to neighboring countries like Vietnam, Cambodia or Laos. They know those jobs aren't coming back.

Instead, the government invested in modern infrastructure and education to equip its citizens for the jobs of tomorrow. They are even mandating AI courses in primary/secondary education. They produce 1.5m engineering graduates each year – 7X more than the US.

I bring this up because I think it's important to note the "other side" of negotiations here, especially with 145% of new tariffs on imports from that country. Trump wants to "make a deal" but it will take time, if one happens at all.

The latest about inflation...

While tariffs are making headlines and sending stock prices down and up, the sun keeps rising and setting, too. Life is going on... and investors got what on the surface appeared to be some welcome news on inflation this morning.

The Bureau of Labor Statistics' consumer price index ("CPI") data for March showed that inflation fell 0.1% compared with February. On a year-over-year basis, CPI rose 2.4%.

Both of those metrics were better than Wall Street's expectations. And the year-over-year reading matched September 2024 as the lowest level since February 2021.

Core inflation, which strips out energy and food costs, rose 2.8% in March from the same month a year ago and 0.1% from February. Like headline inflation, core inflation is now sitting at the lowest level since 2021.

But even though inflation hit a four-year low, we didn't see stocks spike higher. In fact, stock futures sold off to their lows between the premarket release of the report and market open...

Some may chalk this up as profit-taking after the huge move higher yesterday.

But there's more to the reaction than that...

First, if this is the start of a trend of not just slowing inflation, but falling inflation, that could be a sign of deflation in the economy. If we see that, it'll ignite some fears about the U.S. economy slowing. We saw sustained deflation (on a month-over-month basis) in each of the last two recessions.

Also, March was the last month before tariffs on Canada, Mexico, and China went into full, month-long effect. So these March CPI numbers don't accurately reflect the challenges businesses are facing right now. And we're getting more clues on how they're going to deal with tariffs.

A warning from Amazon (AMZN)...

In an interview with CNBC this morning, Amazon CEO Andy Jassy said that he expects third-party sellers on the company's platform to raise prices to pass on the increased cost from tariffs.

As he told CNBC's Andrew Ross Sorkin...

I'm guessing that sellers will pass that cost on. I think they'll try. I understand why, I mean, depending on which country you're in, you don't have 50% extra margin that you can play with... I think they'll try and pass the cost on.

Still, Amazon has not seen any indication that folks are cutting back on spending or that prices are increasing just yet. Though, he did warn we're only a few days into tariffs. But other companies are getting ahead of tariffs to hold onto their margins.

One company that for sure will pass on tariff costs to customers...

As we mentioned earlier this week, memory chipmaker Micron Technology (MU) has warned customers that a tariff surcharge is coming to some of its components. Essentially, Micron is trying to maintain its margins by hiking prices as costs increase from the tariffs.

Micron gets many of its components from Asia – including China (145% tariff rate), Taiwan (32%), Japan (24%), Malaysia (24%), and Singapore (10%).

And while Trump got headlines for pausing many tariffs, he kept the Chinese import tax in place... along with a 10% baseline for all other countries.

Also, we don't know if the higher rates on Taiwan, Japan, and Malaysia will go into effect three months from now and raise Micron's costs.

Micron's memory chips are used in things like data centers, mobile phones, computers, and even cars. So rising costs due to tariffs would have an impact across multiple industries.

We're sure Micron isn't the only company that will do this. Meanwhile, folks aren't waiting around to see who hikes prices next.

Panic buying has returned...

Research firm Cox Automotive estimates that prices for foreign-built cars will go up $6,000, while even cars assembled here in the U.S. will jump $3,600. With an average new car price of $48,000 in the U.S., those price hikes represent anywhere from an 8% jump (for those assembled domestically) to 13% (for those imported to the U.S.).

Those price hikes are pulling sales forward – Cox saw a 30% jump in buyer traffic on its Kelley Blue Book and Autotrader sites in the days before auto tariffs went into effect.

It's not just cars...

Even though Apple (AAPL) has shifted some manufacturing to India and Vietnam, the iPhone is still mainly manufactured in China – which is now facing another tariff increase. A report from Bloomberg suggested that one calculation of the planned tariffs could force a 42% jump in iPhone prices to more than $1,100.

Bloomberg's report said that folks are also "panic buying" iPhones. And tariffs are on their mind – with one Apple store employee saying "almost every customer" was asking if prices were headed higher.

This recalls the early days of the pandemic, when people were "panic buying" household items like toilet paper... and inflation eventually took off...

Putting it all together...

It sure seems like companies are going to raise prices in response to tariffs, even if they are not as "bad" as previously thought – for now.

While March's inflation data seems like a win for markets, one month of positive data isn't going to be enough to move the needle. And investors are already looking ahead to what those price hikes and broader tariffs will mean for inflation in the coming months.

Expect volatile times to continue.

New 52-week highs (as of 4/9/25): Alpha Architect 1-3 Month Box Fund (BOXX) and Kinross Gold (KGC).

In today's mailbag, more thoughts on tariffs... and bringing manufacturing to the U.S... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I always found it interesting that some people move through life using their brain and some using their feelings. Trump came in trying to fix 75yrs of wrongs and in less than one term. He basically has two yrs. He'll be a lame duck, and no one knows what the mid-terms will bring. So, he needs to move fast. He doesn't have time for tiny little moves. That's what politicians do. He may break things but like my wife says – you have to break a few eggs to get a beautiful result." – Subscriber Robert S.

"Hi, Before I leave my comment, let me say I enjoy the ongoing commentary in the Digest.

"While I can understand the issue the administration is trying to fix and why taking this approach to bring back manufacturing, let us be clear what drove the loss in manufacturing. The rate of financialization in the United States has been directly related to the rate of deindustrialization in the US. As the financial sector grew, it displaced manufacturing and industrial activities, leading to significant economic and social consequences, particularly in regions heavily dependent on manufacturing. Instead of selling widgets we focused on selling dollars..." – Subscriber D.R.

"Congratulations to reader Michael S. I can't vouch for his being right all the time, but he certainly is in this case. While I was very happy to see my portfolio recover nearly half of its losses since the market peak in a single day, I know we are not out of the woods and have no idea what comes next. How could the VIX be anything but high?" – Subscriber Sherwin R.

"I agree tariffs in general are bad, and free trade is always the answer. But it's easy to get into idealized fantasy land.

"If tariffs already exist (on one side), how can you fight towards no tariffs other than using your own tariffs to show the other country the error in its ways. To argue otherwise is like a gun control argument to disarm one side (aka lawful citizens) without an acknowledgement and plan to effectively disarm the other side (criminal gun owners) as well.

"Trump didn't invent tariffs, and he didn't fire the first shot. Whether he used excessive force is a debate that will only be resolved with time.

"I have imagined over the last few days a political cartoon with President Trump and other world leaders at a poker table. Stacks of tariffs are on the table in lieu of chips. Most leaders are stony faced, acting alone. A bunch of people (US citizens, Congress, etc.) are standing behind Trump demanding he tell them if this is a bluff, is he prepared to go all in, what are his cards, etc. out loud, right now, before the hand is settled. Some are telling him to fold right now!

"Whether you like Trump or not, he is playing with our chips (American taxpayers), so we should all hope he wins.

"I'm hoping we see at least one country offer to remove all tariffs on U.S. goods, and we immediately reciprocate!" – Stansberry Alliance member John W.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
April 10, 2025