Trump's 90-Day Gift

An afternoon delight... A breathtaking move higher in stocks... Volatility is still high... Worries in the bond market... None of this is easy...

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With the push of a button, everything changed...

A little after 1:15 p.m. Eastern time today, the major U.S. stock indexes suddenly jumped higher... up 4%... 7%... 9%... and ultimately all the way to 12% in the case of the Nasdaq Composite Index.

"What happened now?" we wondered. These days, we know where to go for answers... President Donald Trump's Truth Social account. That's where we found Trump's latest social media post:

Trump began by saying he's raising tariffs on China to 125%, but then he announced he's suspending almost all of the "reciprocal" tariffs on some 75 countries that went into effect at 12:01 a.m. this morning: "I have authorized a 90 day PAUSE..."

This post might be made into a piece of Wall Street art at some point... or maybe a non-fungible token.

The market's reaction was instantly overwhelmingly positive. I (Corey McLaughlin) don't think I've ever seen the stock market move so high so quickly. There was an initial spike higher, followed by steady buying for the last two hours of the trading day.

The tech sector of the S&P 500 finished up 13%, led by semiconductors, and consumer discretionary stocks closed 11% higher. Airlines like United Airlines (UAL) and Delta (DAL) were 26% and 23% higher, respectively.

Trump and the White House have signaled over the past several days that they've been negotiating with trading partners, but this written "pause" was clearly welcomed.

The tech-heavy Nasdaq finished 12% higher for the day, the benchmark S&P 500 Index was up more than 9%, and the small-cap Russell 2000 Index and the Dow Jones Industrial Average closed up around 8%.

Bitcoin is up 7% over the past 24 hours and oil prices are more than 4% higher.

At our headquarters here in Baltimore, the reactions from our staff this afternoon were everything from amazement to resignation about how unpredictable the market can be.

'BE COOL!'...

That was Trump's message on Truth Social earlier this morning, right after the New York Stock Exchange opened. He continued: "Everything is going to work out well. The USA will be bigger and better than ever before!" He also wrote: "THIS IS A GREAT TIME TO BUY!!!"

I suppose he meant it...

Three or six months from now, I suspect we may look back on this week as an important low in the market, though we can't guarantee it. Today's move, as big as it was, only brought the indexes back to where they were on Thursday or Friday.

Whether you are bullish or bearish in the short term may depend on if you believe tariff uncertainty will get "less bad." The issue, as our Director of Research Matt Weinschenk discussed yesterday, is that's hard to predict. As Matt prophetically said yesterday...

The fact Trump could end this calamity in an instant with a Truth Social post makes it challenging for investors to know what to do.

Today was the biggest one-day gain for the S&P 500 since a roughly 11% gain in late October 2008, back when there were major swings higher and lower in stocks amid the market crash during the great financial crisis.

You may recall the market did not ultimately hit a bottom for that period until March 2009.

Things are still extremely volatile...

By closing time today, the CBOE Volatility Index ("VIX") was around 33. That's more than 30% lower than its intraday high of around 50, but still higher than usual.

Some call this index the market's "fear gauge." It measures implied volatility based on options bets (bullish or bearish) on the S&P 500 over the next 30 days or so. The higher the number, the more uncertainty is in the air about the direction of U.S. stocks.

In a typical sell-off, the VIX might come in somewhere near 20 or 25. Until Trump's afternoon delight, the VIX was around 50 for three straight days, an environment we last saw during the COVID-19 panic in March 2020.

On the bright side, this is exactly the kind of environment that is rich with option-selling opportunities, as Dr. David "Doc" Eifrig's Retirement Trader subscribers know. Retirement Trader subscribers, stay tuned for his newest trade recommendation on Friday.

Worry about the bond market...

The state of the bond market – and whether a "crisis" is near – has also been making headlines... including whether it might force the Federal Reserve into a kind of rescue action sooner rather than later (like in March 2020).

Since April 4, the 10-year Treasury yield had jumped almost 40 basis points, a notable move in a short time period. It moved close to 4.4%. Similarly, the 30-year Treasury yield had gone from 4.4% to around 4.9% earlier today.

Meanwhile, the two-year yield – more associated with short-term Federal Reserve policy (and near-term growth and interest-rate expectations) – had fallen from 4.4% in February to 3.7%.

Trump took note, and when asked this afternoon if the bond market persuaded him to reverse the tariffs, he said...

I saw last night where people were getting a little queasy.

That's a telling admission to me that the health of the bond market does matter to Trump.

Remember, bond prices trade inversely to yields, so for most people, this means longer-term bonds haven't been acting as a ballast for the volatility in stocks over the past week.

There are a few theories to consider about the bond market's latest move, but two have gotten some traction.

Here's an excerpt from a Bloomberg article yesterday...

Investors Fear Another Big Blowup of Basis Trade as Treasuries Lose Haven Status...

The basis trade is a strategy that hedge funds use to wager on the difference between prices of cash Treasuries and futures. Because the gap is often minuscule, investors typically borrow to multiply their bets, up to 50 or 100 times the capital invested... It can create a cascading effect that causes yields to surge, or even worse, the Treasury market to seize up, much like what occurred in 2020.

In other words, the bond market's move could be a hedge fund or funds "blowing up" with a trade gone bad.

The second idea is that the Chinese government is retaliating against Trump's tariffs by selling its Treasury holdings or perhaps just not buying any new ones at regularly scheduled auctions this week.

It's hard to say for sure whether that's happening.

For one thing, as Stansberry Research analyst Gabe Marshank pointed out to us today, China holds only about 3% of U.S. Treasurys. So its influence on the market isn't as big as one might believe, even if it were heavily selling U.S. bonds.

For another, the best public-record measure I know of for foreign holdings of Treasurys is about two months outdated, by design and schedule. So we can tell you that China held about $761 billion of Treasurys as of January, according to the U.S. Treasury Department. Even if you take these numbers without any skepticism – because the Treasury makes sure to say in the fine print that they're estimates – we won't know "official" word about a significant shift in Chinese (or any other country's) buying or selling of Treasurys this month until June.

We'll check back on this then. In the meantime, a few of our analysts who discussed the subject today think the recent move in bonds has been more of a "basis trade" unwind at work.

This is probably due to the market repricing fast-changing inflation expectations (to the upside) as a result of the tariff developments over the past week.

And the roughly 25% new tariffs on imports from China isn't insignificant. The grand total of 125% additional tariffs in 2025 makes importing goods from the world's second-largest economy more than twice as expensive as the goods themselves, and that's effective immediately. So businesses are eating these higher costs as of today. That could be why longer-term bond yields didn't move as much as stock prices soared higher today.

What could be next...

We're told many trade negotiations between the U.S. and foreign nations are already underway, but we're talking about individual discussions with more than 70 countries.

The word from Treasury Secretary Scott Bessent this morning was that the U.S. is willing to negotiate on tariffs first with its "military" partners... and then to possibly work on a deal with China as a group. That doesn't sound easy.

But now, the world has at least 90 days to figure things out. That was enough to satisfy Mr. Market today.

New 52-week highs (as of 4/8/25): Alpha Architect 1-3 Month Box Fund (BOXX).

In today's mailbag, feedback on yesterday's Digest about the latest in the tariff war... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I've read various ideas about Trump's ultimate goals with the tariffs. They seem logical. The problem is the way he is going about it. No one likes to be bullied and intimidated, especially the Chinese. You must allow others to retain at least some of their dignity if you want them to agree. Trump could have gone to countries a few at a time. He could have worked behind the scenes so as not to disrupt the market – low-key it. And be polite!! Alas, this is not who he is... The market hates uncertainty, and I can't think of anything more uncertain than having Donald Trump in charge. Boy, do I hate being right all the time." – Subscriber Michael S.

"As an importer when needed of hi-tech SS [stainless steel] equipment in the food processing industry I will continue to buy from China even with 200% tariff as we have no choice. Used second-hand USA and EU equipment is more than double the price of China even with a 200% tariff. Plus, their stuff is getting better and better every year...

"The answer is to cut [regulations] and taxes so that we can produce for less here in the States. Abolish the IRS, increase tax credits... and continue to reduce the regs even more. Opinion of one 86-year-old engineer manufacturer!... I agree with the President even if it hurts!" – Subscriber Moshe K.

"'At Stansberry Research, we believe that free markets are the key to unlocking the greatest wealth for all.' You said it dear Stansberry!!! This is what the administration is after!!! This mess has been building for some time. All we know to do is print more dollars. Do you know why?" – Subscriber John S.

"Not to beat a dying horse here, but the mirror image comparisons between the pre-depression 1929 Smoot-Hawley tariff act and what Trump is doing today cannot be ignored. Please look it up and do your own research. It was approved in May 1929 while we were still prosperous and enacted on certain industries. Other countries retaliated equally, with protests all across the US. Four months later the run on the banks happened, kick starting the Great Depression.

"The problem with extreme tariffs is that it encourages our trading partners to look elsewhere. If your local grocery store doubles the price of your food, are you going to look for another store? Of course you are. The ideology of US exceptionalism no longer works in a world economy that is so interconnected. We are on the cusp of losing our status as the world's leader." – Subscriber Darren N.

"I am a little upset you seem to insinuate that there was free fair trade before Trump initiated these tariffs. Trade was not fair before this, if anything it was accepted by all sides to be unfair to the US, Trump has said he wants to change that acceptance and bring in actual free trade, which seems like it would be better for all parties involved.

"You guys know just like everyone else that the perfect example is US made cars. US cars are nowhere else in the world because of tariffs or other barriers to entry into those markets.

"I am not happy with the state of the markets and trade, but I do understand why Trump is trying to change things, whether it works or not who knows. I doubt it, the Republicans will somehow torpedo any chance of this working in the long run and the economy will just go back to the garbage it has been back on for the last forty or whatever years." – Subscriber D.J.H.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 9, 2025