empty
09.04.2025 10:36 AM
The Market Invites a "Fools' Rally"

104%! Who's next? The stakes in the U.S.–China trade war are skyrocketing, causing the S&P 500 to slide deeper and deeper. And this came right after a strong opening and a 4% intraday rally on rumors that the White House was ready to negotiate with other countries—except China. Donald Trump has named his main adversary, and Beijing's readiness to go all the way unnerves U.S. stock fans.

When the White House introduced a 10% tariff on imports from China and later added another 10%, China remained silent. But an additional 34% crossed the line. Beijing responded symmetrically, which provoked Trump's wrath and threats to raise tariffs by another 50%. The announcement that the U.S. administration was moving in that direction sent the S&P 500 plunging.

U.S. Tariff Revenues

This image is no longer relevant

According to Treasury Secretary Scott Bessent, the U.S. intends to raise around 600 billion dollars in its first year of tariff implementation. However, Bloomberg analysis suggests that the figure will likely be half at best and decline as U.S. imports shrink by a third due to the tariffs.

The benefits of protectionism appear negligible compared to the disruption of supply chains, slowdown in global trade, declining global GDP, weaker U.S. economy, and rising inflation. The stock market is sending a clear signal that the downside outweighs the upside. The S&P 500's drop is the result of a dramatic shift in sentiment—from denial of recession to sudden belief in it.

The latest AAII (American Association of Individual Investors) survey recorded the highest number of bears since March 2009—even before America's "Liberation Day." So, the market may soon post a new anti-record. Still, any attempt to buy the S&P 500 purely because of extreme bearish sentiment could turn into a "fools' rally." We saw a similar case in 2008 during the VIX spike, when the broad market index jumped by 20% between October and November, only to lose 25% over the next four months.

U.S. Bond Yield Dynamics

This image is no longer relevant

This image is no longer relevant

There's still room for the S&P 500 to fall, and a rise in Treasury yields could be the next trigger for a sell-off. Yields have been swinging back and forth as investors struggle to determine what the Federal Reserve will do amid stagflation. Meanwhile, China's willingness to escalate the trade war raises the risk that it could dump U.S. debt holdings. Higher yields on Treasuries would be another nail in the coffin for the broad stock index.

Technically, the S&P 500 continues its downtrend on the daily chart. A break below the pivot support at 4910 would justify building on short positions initiated from the 5200 rebound. Conversely, a bounce would allow the continuation of the existing buy-the-dip strategy on the broad index.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast

Gold continues to show strong demand, trading near its all-time high, just below the key psychological level of $3400. The hardline international trade policy pursued by U.S. President Donald Trump

Irina Yanina 19:15 2025-04-21 UTC+2

EUR/GBP. Analysis and Forecast

The strengthening of the pair is linked to the euro's rise amid U.S. dollar weakness, driven by concerns over a potential recession in the U.S. and questions about the Federal

Irina Yanina 12:17 2025-04-21 UTC+2

Markets in limbo: awaiting next shock or revival

After the rollercoaster ride of early April, the US stock market seems to have come to a standstill. The S&P 500 is neither alive nor dead — it's starting

Marek Petkovich 11:46 2025-04-21 UTC+2

The Dollar and Stock Market Crash Continues (AUD/USD May Keep Rising While USD/JPY Declines Further)

While Europe and parts of Asia continue celebrating Easter and political life has temporarily paused, in the U.S., the "Make America Great Again" trend set by Donald Trump continues

Pati Gani 09:04 2025-04-21 UTC+2

What to Pay Attention to on April 21? A Breakdown of Fundamental Events for Beginners

No macroeconomic events are scheduled for Monday—not in the U.S., the Eurozone, Germany, or the U.K. Therefore, even if the market was paying attention to the macroeconomic backdrop, today, there

Paolo Greco 06:30 2025-04-21 UTC+2

GBP/USD Overview – April 21: The Inertial Growth Continues

The GBP/USD currency pair continued its upward movement on Friday. If we had seen such price action away from peak levels, there would have been no questions. In essence

Paolo Greco 04:01 2025-04-21 UTC+2

EUR/USD Overview – April 21: The Market Sleeps, Only Trump Can Wake It Up

On Friday, the EUR/USD currency pair made no notable movements whatsoever. This was unsurprising, as Friday marked Good Friday, and Sunday was Easter. Many banks and trading venues were closed

Paolo Greco 04:01 2025-04-21 UTC+2

US Dollar: Weekly Preview

Is there light at the end of the tunnel? The US dollar will again try to answer that question in the new week. To briefly recap: over the past

Chin Zhao 01:01 2025-04-21 UTC+2

British Pound: Weekly Preview

Several fairly interesting reports were released in the UK, but they almost did not impact market participants' actions. Demand for the British pound increased on all five days except

Chin Zhao 01:01 2025-04-21 UTC+2

Euro: Weekly Preview

There were very few changes regarding the euro last week. We observed horizontal movement for most of the week, which naturally did not affect the current wave markup. I want

Chin Zhao 01:00 2025-04-21 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.