S&P 500 Poised For Leg Down

Volatility 

Investors in the S&P 500 who were hoping for greater certainty with the announcement of the Liberation Day tariffs were disappointed.

Uncertainty and volatility continue to cast a shadow over the financial markets.

The scale of the tariffs far exceeded the most pessimistic projection, and China’s retaliation is unlikely to be an isolated response.

On that basis, the final position on tariffs is unclear, and anybody who says they know what it will be is delusional.

Liquidation

The S&P 500’s response to the announcement is clear in the charts and the price. No sector was spared the liquidation event, as hedge funds and institutional investors scrambled to identify the impact on stocks with global exposure.

However, if they were looking for something to hang their hat on, the reality is that there’s nothing there. There is no historical precedent for the scale of tariffs announced, and historical precedents are only useful before the event.

In our 20 January post, we noted:

“The S&P 500 may struggle amid uncertainty regarding the size, sequence, and scope of the Trump administration’s changes to fiscal and regulatory policy. Negative shocks from tariffs may occur before positive shocks from tax cuts, deregulation, and accelerated energy production.”

The best response at this point may simply be to follow the lead of the Federal Reserve and wait for the final tariff position and the economic implications to unfold.

Clarity regarding the final tariff position, coupled with announcements on tax cuts, deregulation, and energy production, may provide the support that investors in the S&P 500 are seeking.

S&P 500 Key Levels:

Without any positive tariff news over the weekend, the likely direction of the S&P 500 today is down.

Support at 4950 is unlikely to hold and a test of 4800 can’t be ruled out.

A relief rally, at some point, is on the cards, however, in the absence of any positive tariff developments it won’t be sustained.

We expect the S&P 500 to remain range-bound at these lower levels for the remainder of the month as the S&P 500 attempts to re-price.