As irony and destiny wanted it, with the publication of my last Weekly, markets crashed down hard, effectively erasing much of the gains of the last twelve months. Of course, it wasn’t my publication that ignited the fireworks. I had written my Weekly shortly prior to the tariff announcement which was the catalyst that sent markets worldwide lower in fear of a major economic contraction. Big calls for another 1929 depression and 1987 Black Monday crash evaporated, at least for now. Then yesterday, one of the best days on Wall Street EVER. What to make out of this?
Summary and key takeaways from today’s Weekly
– The first quarter saw a correction, but Q2 started with a bang to the downside.
– Sentiment currently is jumping around with new headlines each day.
– One needs to keep a cool head.
The last trading sessions likely increased the heartbeats of many market participants.
On the same day following the publication of my previous Weekly, a significant slide started in response to the tariff announcements issued the previous day. While the after hours’ response was comparatively mild with futures falling only 2–3%, especially the three trading days Thursday to Monday saw heavy market turmoil with big moves.
Only to be followed by a crazy Tuesday… And an even crazier Wednesday…
It was remarkable how sentiment shifted back and forth. In a matter of days, suddenly the public started to anticipate a nosebleed event a la 1929 or October 1987. It came differently, though. Rarely if at all does the market react in a way seemingly everybody is expecting it to do. But you could literally smell the fear. A fast bounce followed, only to be sold again. To see one of the best days on Wall Street EVER.
Last week, I discussed the correction that started in the first quarter (see here).
My observation was that primarily tech stocks have been leading on the way down, while effectively most sectors of the S&P 500 were even up year-to-date. This has changed now, especially as during the market fallout OPEC decided to increase its production above expectations, in parallel crashing the oil price.
Sometimes nothing happens in years, sometimes years happen in a matter of a week or so as the saying goes.
Time to have a look back, but also to what might be awaiting us.
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both as per 09 April 2025 market close – since August 2022
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The Black Monday that refused to show up
The events have come thick and fast.
Futures turned from green to red Wednesday April 2nd within a matter of minutes after hours with the presentation of the concrete tariff numbers which were above the expected 10% for most countries.
One of the jokes of the next day was that even a penguin-island was given tariffs.
But seriously, what followed for most investors likely wasn’t fun.
Instead of even remotely thinking about any type of positive performance, the new theme was just to survive the meltdown.
Thursday and Friday each saw a brutal 6–7% down in the US. Both sessions started with a gap down. Day-to-day losses of this magnitude have not occurred often. Thus, it is little surprising that many people started to become first nervous and quickly turned into panic mode, fearing a major crash was coming. Monday opened with another gap down, but the session ended strongly above the day’s lows.
Gap down on Thursday, the session closed strongly down near the low. Friday the same, but with volatility blowing off and going into the weekend in full blown panic.
You can see the volume bars being red and extremely high – everyone was selling.
Monday started with another gap down in the indices and pre-market the volatility index VIX was even sniffing at the 60 level, indicating major stress.
As you can see below, VIX reversed down and finished Monday only marginally above the previous closing. That’s a substantial move, erasing a surge of 30%.
Those who thought Monday was the final sell off, were shocked to see what happened on Tuesday.
At least, Tuesday opened with markets strongly in the green with the VIX crumbling.
My longer time readers and twitter followers know that I can’t leave this occasion go to waste. One of the media’s best contra-indicators, CNBC’s Jim Cramer, did it again.
Over the weekend he was aggressively pounding the table for the next Monday being another Black Monday, in reference to the famous 19 October 1987 crash. Until today, this was the biggest one-day decline ever.
source: twitter, see here
Not only he, but many other accounts were so convinced about a new Black Monday that it was almost impossible to play out exactly this way.
And it didn’t happen. It came differently, but also painful.
Markets opened last Monday with a gap down, shaking out the last weak hands. But the day closed noticeably higher, depending on the index either in positive territory or close to it. That’s a substantial intraday move of roughly 5–6%.
The start into Tuesday looked promising, luring in bulls…
… only see a major reversal to the downside again. The S&P temporarily was up by 4%, only to close about 2% in the red.
That was another shocking session.
Zooming out a bit, it becomes clear that effectively the performance of the last twelve months had been eradicated on Tuesday 8 April 2025 since late-February.
But it is important to understand, the current correction already started in late-February (like I wrote in my last Weekly) – while the official liberation from capital gains only started on 3 April 2025. The difference is the speed and the surrounding drama, but also potential economical implications.
As seasoned investors and traders exactly know, after the darkest night comes the brightest day. At least that is what’s keeping many investors motivated.
In other words, the strongest up-days often occur in an immediate reaction to brutal crashes. This is why it is very risky to sell into a panic when the damage is already done. Most people don’t participate to the upside again or only much too late when a big rebound has already occurred, explaining why the majority of investors over the long-term don’t make money with stocks.
The thing is only we just don’t know when this will happen.
But it didn’t take too long. On the next day we even saw one of the best days EVER.
Psychology kills them.
It is not necessarily better to wait until the dust settles. But it depends.
The preparation needs to be done beforehand. Either one has some dry powder left or the portfolio is hedged. Hoping and then selling at the low is not the solution.
But it also depends on the portfolio composition.
For sure, one needs to make sure the losses don’t become too big.
Just to illustrate with two more charts how negative and one-sided sentiment was: first the put to call ratio on equities. The figure of 1.7x on Monday was extreme, with almost twice as much put options than call options (betting on falling prices).
In up markets, this ratio is substantially below 1x.
source: twitter, see here
And second, the total option volume, total and puts, have set new records. The same applies for total shares traded.
An eventful week full of superlatives.
The next interesting chart I’ve come across is the drop of the S&P 500 in comparison to the former safe-haven-nothing-can-go-wrong Mag7 stocks.
They’ve quickly turned from Mag7 to Malignant 7. Not even one of them lost less than the index since the beginning of 2025 until Monday. Let that sink in.
Then you also have those people “motivating” each other and others to simply continue their investments into ETFs. The problem is most of the big ETFs, being it on the MSCI or the S&P 500, are tech-heavy. As none of these stocks – even after the sharp correction – are cheap enough, it is unlikely they’ll generate much alpha (over-performance). The previous excess needs to be cleaned up.
I do not see that to have happened, yet.
While it is true that these stocks likely will rise disproportionately compared to for example defensive consumer staples or telecom stocks after a bottom is found (like it happened yesterday), the other part of the truth is they need to make up much more ground.
So effectively, tech stocks remain uninteresting for me under the current circumstances.
Tech stocks are cyclical, growth has slowed down massively and valuations are too high. Plus, the AI saga is crumbling with e.g. Microsoft (ISIN: US5949181045, Ticker: MSFT) scrapping its data center investments (see here or here). Period.
After having bashed tech stocks again, I obviously need to comment on one of my favorite sectors, namely energy, respectively oil.
Having been the top performer in Q1, OPEC with its announcement has sent shockwaves through this sector.
Aggressively hiking output into a weak world economy and risks of a further slowdown is clearly a strategically political motive.
The bottom line is simple, though.
I stick to my picked energy, respectively oil ideas. The primary reason is that I have chosen low-cost producers which will survive the longest. Additionally, a company like Vista Energy (ISIN: US92837L1098, Ticker: VIST) will make up the lower average prices with much higher volumes which isn’t the case among the biggest producers as they practically are only driven by commodity prices.
In the past, I had written about this topic and why even in bull markets it makes more sense to choose low-cost producers (see here).
But that alone would be stupid as I do not want to go down 70% first hoping to be back in a few years. The reason is the downside should be rather limited. Even if it sounds completely nuts at the moment.
Of course, there can be an exaggeration to the downside. However, I think it wouldn’t last long. Adding on this thought, the first victim will be very likely US shale producers. Purposefully, I have no active ideas with companies that operate in the US shale sector.
If the numbers are true – I have no reason to doubt them – then at current oil prices (as of writing we’ve breached 60 USD) we won’t see much new drilling in the US. This is toxic insofar as shale’s output booms and craters again very quickly, i.e. they need to replace current activities quickly again. Else, volumes crash very fast. The other question is, what do high-cost producers do with loss-making wells?
My expectations for the Permian Basin tilting soon can be found in my archive (see here). No matter how we turn it, it is a race against time for the US fracking industry.
These are not just my thoughts. Here’s the same from a high level:
First companies are even reacting already:
I haven’t heard the same from low-cost producing countries or companies.
But there’s more to it.
Reserves seem to be shrinking and break-even costs are rising. Current estimates are that oil needs to be above 60 USD. Otherwise, US shale will be a thing of the past rather quickly. At least when speaking of the entire size of it.
This is insofar important as US shale has been the major growth driver over the last 16 years or so.
Not just in the US, but worldwide (I had written about it here)!
Another article claims 80 USD are needed, but even the 60 USD figure is already a convincing and solid bottom for me. With my ideas having production costs of around 30 USD and the flexibility to decrease their investments to preserve cash flow, this is a comfortable position to be in. Balance sheets are crystal-clean of course.
Any drop below 60 USD should be rather short-lived as volumes will go down massively. I expect a strong rebound of oil prices afterwards.
That’t not all. What else has been happening?
As news and headlines are the only ones to move markets currently between hope and fear, it is worth it to include the latest pieces of news.
For example, take this one where an industrial company and sponsor in Formula 1 reported a massive shift to the defense with breaking away demand for their tools.
It is almost safe to say they won’t be the only and last one.
As of 09 April 2025, China answered to the just raised tariffs against them two hours before markets opened in the US.
The US has now import tariffs on goods from China of 104%. Well, this was yesterday. As of editing now, it’s 125%, but more further below.
China answered as they promised.
That’s on the surface level. But there’s also something under the hood brewing.
Trump wanted lower interest rates. He needs them as a big wall of debt is due soon. There was a rumor that Trump’s team might be interested in crashing the market to force the FED to lower interest rates, hoping that government bonds’ yields drop, either. But someone’s not playing to this.
10 year yields are now HIGHER than before tariffs were set.
So you see, the traditional “flight to quality” does not work.
And then there’s the currency front.
Money is being pulled out of US assets (equities and bonds), impacting the US exchange rate.
I’ve found this piece below very interesting to at least have heard of.
Almost every hour or so new negative news pop up.
Else, for now I see no reason to panic.
No, seriously. One needs to keep a cool head. There’ll be a time when negativity is simply too big. This was a correction, quick and painful for many. And this time, it is not just tech stocks falling. But there’ll come the point where sentiment will be so bad that markets reverse for a big bounce. Nothing goes down forever.
This was what I had written as of yesterday. Now, yesterday Trump made a major reversal, postponing tariffs by three months and setting them at 10% from what I read. The only exception: China, where he raised them even to the aforementioned 125%.
Back and forth, back and forth…
Personally, I remain skeptical at least for now that the entire tariff stuff will be resolved quickly and peacefully as if nothing happened. I expect a few trade deals with smaller countries to be announced soon (maybe raising new hope), but China will likely remain tough. It is not in their culture to bow and lose face.
That’s why with the exception of oil, where I laid out my thoughts above, I continue to avoid consumer discretionary sectors. By the way, my oil and oil-related ideas yesterday jumped much more than the indices, showing that the drop has gone too far.
A few more words on the businesses: Companies are not stupid. They will find loopholes like sending goods through other lower-tariffed countries like e.g. the UK (or potentially soon to be announced countries with a new deal with the US). Current moves like the one below are only short-term “solutions”.
There are said to be ongoing discussions with countries like Vietnam or Taiwan offering deals to the US (see here). In total, more than 50 counties are said to have reached out to the US government for negotiations.
At the current stage, everyone hopes for positive news to take a breather.
That happened yesterday.
But it is not a final solution. That’s why I do not expect the return to a booming economy anytime soon. In fact, I have been skeptical for a longer time now. But now, there’s substance to these thoughts. We have “only” made up some ground for most (not all!) of the damage of last week. I am saying “only” because the highs are still substantially away.
Which doesn’t mean they cannot be reached.
But this looks like a massive bear market rally. In healthy bull markets, we do not see such gigantic surges. Maybe at the bottom of a drop, but it remains to be seen whether this was the bottom or not. Problems haven’t been solved, only postponed.
It will likely be best to have an eye on special situations with potential company-specific catalysts on the horizon. Absence a big market crash, these ideas can develop an own life and surge independent of broader market sentiment. Especially in nervous sideways moving markets, this can be an edge.
Else, companies with defensive business models and no import dependency could make sense to have an eye on.
And I stand firm with my oil picks. This is a race against time with time on our side.
Conclusion
The first quarter saw a correction, but Q2 started with a bang to the downside.
Sentiment currently is jumping around with new headlines each day.
One needs to keep a cool head.
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