March 14, 2025

QuickTakes

Scared Cat Bounce?

The S&P 500 rebounded nicely today in the morning after falling into correction territory yesterday (chart). Was yesterday the bottom? It might have been based on sentiment indicators. On a fundamental basis, President Donald Trump (a.k.a., Tariff Man) didn't tweet about tariffs today after doubling down on Thursday. "I'm not going to bend at all," Trump said when asked about his tariff plans during an Oval Office meeting with NATO Secretary General Mark Rutte. Any day without a Trump tariff comment is a good day for the market. Also, today we learned that in an unsigned letter addressed to the US trade representative, Tesla said while it "supports" fair trade it was concerned US exporters were "exposed to disproportionate impacts" if other countries retaliated to tariffs.

The market is also rallying on relief that there won't be a government shutdown. Democratic Minority Leader Senator Chuck Schumer announced Thursday evening that he will support a Republican short-term funding bill that will effectively help avoid a government shutdown at the end of the day. This morning, Schumer explained that a government shutdown would give Trump and Musk's DOGE more power to lay off or fire more government workers and shutter federal agencies.

We will be more inclined to call a bottom when we see the stock market move higher on a day or days when Trump blusters about tariffs again. We know that on April 2 there will be lots of reciprocal tariffs imposed on many more nations by the administration, undoubtedly eliciting lots of comments from Tariff Man.

We thought that the stock market would be choppy at the beginning of the year before heading back to record high territory later this year. It's been choppier to the downside than we expected. For now, sentiment indicators are very bearish, which is bullish from a contrarian perspective:

(1) The CBOE Put/Call Ratio jumped to 0.94 yesterday (chart). That's well above its average of 0.66.

(2) Investors Intelligence Bull/Bear Ratio dropped to 0.80 last week. Readings below 1.00 have been strong buying signals in the past, though they can stay below 1.00 for some time before the market clearly bottoms. The AAII Bull/Bear Ratio is also very bearish. Such extreme sentiment often triggered a "Fed Put" response. That's not likely anytime soon. Nor is a "Trump Put."

(3) Meanwhile, the price of gold continues to move steadily higher into record high territory (chart).

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