S&P 500 And Trump Liberation Day

Consolidation

April 2 will bring in the reciprocal tariffs that Trump has signalled will be America’s Liberation Day. Expect volatility in the S&P 500 surrounding the tariff announcements, which will likely be compounded by the Nonfarm Payroll report on Friday.

At the beginning of last week, as anticipated, the S&P 500 tested and closed at the call resistance level. However, the bears strongly rejected the bulls’ attempt to push beyond this level. The dollar and the 10-year yield also gained in the same period.

Given the Trump administration’s stated aim of driving down the 10-year yield, it raised questions about what they would do in response. Would they accept a reversal in trend? Or would they intervene?

Intervention

The S&P 500 didn’t have to wait long for the answer. On Wednesday, Trump announced a 25% tariff on all auto imports into the U.S. That announcement, coupled with a hotter-than-expected PCE, sent the market into a downward spiral.

However, the tariff announcement did have the desired effect. Both the dollar and the 10-year yield corrected to the downside.

As noted in our March 3 post, the Trump administration is laser-focused on keeping the 10-year yield from rising.

Any perception that the Trump administration is losing control of the long end of the yield curve is a significant risk to their narrative.

The choice of autos for tariffs is unlikely to have been the main catalyst for the decline in the S&P 500. Trump could have chosen from a number of sectors for tariff consideration. The main catalyst was simply a global tariff announcement.

The S&P 500 response to the auto tariff announcement does bring into sharp focus the likely reaction to Liberation Day.

S&P 500 Key Levels:

The S&P 500 opens in negative gamma today.

Last week, the gamma flip zone dropped to 5653, call resistance remained at 5777 and put support remained at 5485.

The S&P 500 remains above the recent low at 5500; however, it is likely to test this level today. If it breaks below this level, then things could get ugly.

Much of the direction of the market this week will be determined, initially, by the April 2 tariff announcements and the global response to them.

If markets view the tariffs positively, and there is a sell the rumour and buy the fact scenario in play, then a test of the gamma flip zone is likely.

If the markets view the tariffs negatively, a break below 5400 and a further decline to 5100 can’t be ruled out.