‘The performance in March is mediocre as it approaches its end, but there should be a decent market after the tariff implementation in April; a bull market requires patience.’
The liberation day predicted by Trump is about to arrive alongside PMI and non-farm data. As of this week, global trade policy uncertainty has soared to a mid-month high (see Figure 1). The uncertainty in policy remains a source of pressure in the risk market. According to calculations, if Trump implements the largest tariff measures next week (the average US tariff rate will increase by 28%, as shown in Figure 2), it will lead to a 4% decrease in US GDP and a nearly 2.5% increase in prices, and this impact may last for two to three years. What we need to know is that tariff policies have negatively impacted the market since Trump took office. Tariffs will raise the prices of related goods but are only a one-time adjustment, not a continuous increase in prices. It is expected that the market's uncertainty will begin to decline after liberation day.
Next week’s PMI and non-farm data may be far more influential than the actual tariff measures implemented on liberation day. Currently, manufacturing PMI is expected to show a slight contraction, while the service sector remains stable. Non-farm employment in March could unexpectedly increase significantly, as employee hiring in certain industries has already warmed up (see Figure 3). Overall data may continue to keep the FED on the sidelines.
Is there still hope for the market?! 🌫️ Although I cannot decide how the market should behave, I still maintain confidence. As mentioned in previous weeks, the Trump administration showed an intention to consolidate political capital and did not aim to harm the market during its early days. Once the uncertainty surrounding tariffs is eliminated and liquidity improves, the market will recover, which is an opportunity we might see in April. Although there was a slight rebound in March, the overall performance remains unsatisfactory. Currently, the SPX has already seen a 10% drop, and such rapid declines in the past were mostly due to black swan events or major crises. Trump's first term also caused a significant market drop due to the trade war (from 2018/1/26 to 2018/02/08, lasting only 13 days, as shown in Figure 4). Subsequently, the SPX almost always showed good performance, with an average performance of 8.2% three months later and 15% six months later.
Moreover, retail investors are withdrawing from the stock market at the fastest pace (as shown in Figure 5). Retail investor allocations in the US stock market have seen the largest decline, with funds clearly flowing into other markets and the money market. Recent market surveys also indicate that 51% of Americans believe ‘another large-scale market crash is imminent,’ and a survey by the American Association of Individual Investors (AAII) shows that more than 60% of investors are bearish. This situation has only occurred five times since the survey began in 1987... As shown in Figure 6, the pessimistic expectations of retail investors for the future, besides now, happened during the 2020 pandemic. Unless you believe a global economic recession similar to 2008 is forthcoming, what reason is there not to buy or HODL?
Recently, the money market level has increased by about $857 billion since last year (see Figure 7), with SPX falling to the same level, BTC pulling back to 80k, and ETH returning to the bear market bottom of 2023 🥶. This indicates that a lot of funds are waiting on the sidelines, looking for clearer market changes before entering. Regarding liquidity, most experts I follow believe the market is very close to a turning point in liquidity (a breakout upwards). According to the previous LMI model, after a downturn on the 25th, it will start to rise again towards the 30th (which is today). If the model holds, the upward trend could continue until mid-April and then weaken again, possibly strengthening again in early May...
I can only say that the market may continue to be frustrating. Recently, there have been no clear signs of a strengthening trend on-chain, with only the trading activity of Ethereum's stablecoin continuing to rise. Other metrics, such as DEX trading volume and token trading conditions, have returned to levels seen in October last year (see Figure 8). However, based on blave contract data, BTC has entered a phase of chip divergence, so it might be time to start paying attention to any opportunities!
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