In times of chaos, it is important to have a well-designed, battle tested plan. I don’t know how better to describe the last week and a half other than pure chaos. That isn’t a statement about my opinion of the swirling news alerts, the policies implemented, or the people who designed the policies. It is simply what happens sometimes with the markets.
I’m not (yet) calling this a crisis, but the recent weeks have reminded me of March/April 2020 and 2008. Each day seems to have major, market moving news headlines which bring jaw dropping moves both up and down. It can be exhausting trying to keep up with everything. Rumors can move stocks 3-5% in a short period of time.
Be wary of the headlines
We saw this happen last Monday when a Twitter (X) account reported the White House was considering a 90-day pause to the “liberation day” tariffs. CNBC eventually picked it up as did Reuters (which then attributed it to CNBC, not a Twitter post) and the market was off to the races until the White House released a statement that they were NOT considering any sort of pause. The markets then plunged again.
‘Fake news’ and a $4 trillion swing: Inside the stock market’s wild moves today
The dramatic moves intraday — and the flimsy basis for the sudden rally — show how starved investors are for good news that could stop the sell-off.
We know the President is watching closely
We of course know that the White House actually WAS planning for a 90-day pause, or at least it had been discussed. This wasn’t announced until Wednesday. It turns out JP Morgan Chase CEO Jamie Dimon, who had been warning since the new tariffs were announced about the US heading to a recession, shrewdly found a way to get the message across to the President — by joining one of his favorite shows – Mornings with Maria” on Fox Business. (Maria being Maria Bartiromo).
After the appearance, the President called Maria to discuss it. Soon thereafter, the 90-day pause was announced and we saw stocks close the day up nearly 10%.
You can get the full Wall Street Journal story here.
Stocks gave up nearly half of those gains on Thursday, but gained ground again on Friday. On Saturday news broke that the Trump administration was exempting Chinese imports of smartphones and other key electronic components, including equipment used in manufacturing electronics. But then on Sunday the President tried to backtrack saying nobody gets exceptions, pointing out that electronics and the other goods mentioned as exempt are still subject to the 25% “fentanyl” tariffs imposed at the start of his term. Other rumors have been floating around that certain businesses were also working on exemptions for specific products and materials. This could be a sign that at least some of the tariffs were a negotiating tactic, but it does not mean the worst is over.
Troublesome Signs in the Treasury Market
Wednesday morning I had a meeting with a large advisor’s office and their team. I told them my biggest concern was the Treasury market. The two days after the “liberation day” announcement I was pleased with how well the bond market held up. Bonds actually did what they typically do during a crisis – become a ‘safe haven’. On Monday this all changed as yields started spiking. The ‘pause’ on tariffs did not help and yields moved from a low of 3.9% the week before all the way up to 4.55% on the 10-year Treasury. A rally late Friday morning helped push rates down a bit to close the week, but these moves are certainly concerning.
Remember, the US is running a trillion dollar plus deficit. This needs financed with Treasury Bonds. Higher rates lead to higher interest costs and lower growth. There were rumors the selling in Treasuries was related to China, but there is no clear indication that is the case. I was asked about this several times last week and for now I will stand by my answer, one I’ve given for over 15 years — China needs us just as much or more than we need them. If they CHOOSE to purposely hurt our Treasury market, they will be hurting themselves. China has just over $1.5 Trillion of US assets held in their foreign bank accounts. This assists them in global trade. Destabilizing their own assets would also destabilize their ability to sell to other countries.
This certainly could change. Whether the Administration wants to call it a ‘Trade War’ or not, this is most certainly a battle with high stakes for both countries. It’s been said nobody wins in a war. There are always losers on both sides. The US reliance on China for cheap “stuff” and China’s reliance on the US to fund their growth initiatives has created a case where “mutually assured destruction” is possible if cooler heads do not prevail on both sides.
I’m not saying that is where we will go. We have no data that says this will happen and the President’s connections to the markets would likely lead to some sort of compromise to prevent a complete economic collapse.
The most important thing you can do right now is stick to your plan. At SEM we have a plan whether things get worse or the worst is already over. This is pre-planned and based on DATA, not what we thing the President may or may not do next.
For more, check out the Market Charts and SEM Model Positions in the sections below.
Market Charts
The post-election chart below highlights the volatility we’ve seen since the Trade War began heating up in mid-February. Zooming in like this does allow us to see the market trying to consolidate after the big move up on Wednesday.
Zooming out tells us some important things:
1.) Stocks gained nearly 50% from the time the Fed announced they were done raising rates in late 2023 and when the trade war kicked off in February.
2.) Stocks are still up an impressive 30% from November 2023 through today.
3.) On a closing basis, we haven’t yet had a technical bear market (down 20% from the high)
Small caps are still struggling, while tech stocks, as measured by the NASDAQ had a strong recovery after the “pause” was announced.
As mentioned above, Treasury yields are a much greater concern. Yields have been trending down throughout the year, but that trend is now in jeopardy.
Corporate Bond spreads have also jumped over the past week. They are not yet a concern, but they do represent a shift in risk appetite since the “liberation day” announcement.
Most importantly right now is to ask, “are the tariffs doing any actual damage or are they just scaring everyone?” The first place this will show up is in the initial unemployment claims. For now, there has been no spike in layoffs, but that could change soon. The high level of continuing claims tells us if somebody loses their job they are having a very hard time finding a new one.
SEM Model Positioning
No changes were made after our sell signals on 4/3 & 4/4 as noted below. At least according to the data, we are in a “wait and see” mode.
-Tactical High Yield sold high yield bonds on 4/3/25 after 9 weeks in these funds. All proceeds were moved to money market or short-term bonds, with a yield around 4.1% in money markets.
-Dynamic Models are ‘neutral’ as of 6/7/24, reversing the half ‘bearish’ signal from 5/3/2024. 7/8/24 – interest rate model flipped from partially bearish to partially bullish (lower long-term rates).
-Strategic Trend Models received 1/2 of the trend sell signal on 4/5/25
SEM deploys 3 distinct approaches – Tactical, Dynamic, and Strategic. These systems have been described as ‘daily, monthly, quarterly’ given how often they may make adjustments. Here is where they each stand.
Tactical (daily): On 4/3/2025 our tactical high yield model sold out of high yield bond into money market.
Dynamic (monthly): The economic model was ‘neutral’ since February. In early May 2023 the model moved slightly negative, but reversed back to ‘neutral’ in June. This means ‘benchmark’ positions – 20% dividend stocks in Dynamic Income and 20% small cap stocks in Dynamic Aggressive Growth. The interest rate model is slightly ‘bullish’.
Strategic (quarterly)*:Â One Trend System sold on 4/4/2025
The core rotation is adjusted quarterly. On August 17 it rotated out of mid-cap growth and into small cap value. It also sold some large cap value to buy some large cap blend and growth. The large cap purchases were in actively managed funds with more diversification than the S&P 500 (banking on the market broadening out beyond the top 5-10 stocks.) On January 8 it rotated completely out of small cap value and mid-cap growth to purchase another broad (more diversified) large cap blend fund along with a Dividend Growth fund.
The * in quarterly is for the trend models. These models are watched daily but they trade infrequently based on readings of where each believe we are in the cycle. The trend systems can be susceptible to “whipsaws” as we saw with the recent sell and buy signals at the end of October and November. The goal of the systems is to miss major downturns in the market. Risks are high when the market has been stampeding higher as it has for most of 2023. This means sometimes selling too soon. As we saw with the recent trade, the systems can quickly reverse if they are wrong.
Overall, this is how our various models stack up based on the last allocation change:
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