Liberation Week
Weekly Roadmap for 03/30-04/05
Before we dive in…
If you’ve been following along, you already know we’ve just wrapped our Q1 Performance Review + Commentary, along with a Current Holdings Update for those keeping tabs. If you missed those, give them a read—especially if you like charts, conviction, and the occasional unsolicited opinion on macro stupidity.
Now, with Q2 knocking and markets behaving like a caffeinated squirrel dodging traffic, we shift focus to the week ahead—a battlefield of tariff tweets, AI tears, and small-caps on the brink of either greatness or gravity.
Let’s get into it….
Weekly Roadmap: A Storm of AI Angst, Tariff Tension, and Economic Crosswinds
Last week came in quieter on the economic data front—but don’t mistake silence for serenity. Under the surface, things were shifting. The real story? A sharp unwind in the AI/Semiconductor complex that sent the Nasdaq (the Q’s) into a tailspin. TD Cowen dropped some bearish remarks on AI infrastructure, Goldman followed up with a downgrade on the whole complex, and Alibaba’s CEO called the data center euphoria a bubble. A triple-punch to the gut. Tech stocks took it on the chin, with the Q’s limping in as the worst-performing index. The Dow, by comparison, was the least-worst—down just under 85 basis points.
We started the week with a gap up—thanks to some vaguely dovish headlines ahead of the much-anticipated “Liberation Day” on April 2nd. Markets cheered at first, sensing a walk-back in tone from the administration. But as is often the case these days, optimism was short-lived.
Come Wednesday, the AI parade got rained on. TD Cowen recycled a bearish note eerily similar to February’s (Microsoft denied those claims back then, too), and yet here we are again—market in “shoot first, ask questions later” mode. Meanwhile, Alibaba’s top brass throwing cold water on the AI excitement didn’t help. Cue the unwind: semiconductors, AI infrastructure plays, and anything in that vicinity got hit hard. That weakness rippled outward, dragging the rest of the market with it.
Then Trump grabbed the mic.
He declared 25% tariffs on all foreign-made cars, plus new levies on pharmaceuticals and lumber. The tariffs are set to kick in April 2nd, with collections starting the next day. Markets didn’t panic—maybe because Trump tempered the blow in classic fashion:
“We’re going to make it all countries, and going to make it very lenient... less than the tariff that they've been charging us for decades.”
In other words, reciprocal tariffs… but not really. A soft bark, perhaps, rather than a bite. The “reciprocal” rhetoric has been revised to sound less retaliatory and more... negotiable. The market took this as a potential olive branch rather than a flamethrower.
Still, this is a diplomatic game of chicken…
If Canada and the EU retaliate, we could spiral into a tit-for-tat trade war redux. By week’s end, Canada’s Carney made conciliatory remarks, and reports out of Europe suggest the EU is preparing concessions to hash out a deal before April 2nd.
On the economic front, we wrapped the week with the PCE inflation print. Headline PCE held steady at 2.5%, but Core ticked slightly higher—enough to keep the Fed sweating. The real concern? Inflation progress has flatlined over the past year. Throw in weakening consumer spending, and the market suddenly cared more about growth fears than inflation, bidding up bonds and shifting attention toward slowdown and recession risk.
Friday sealed the mood. Consumer sentiment data dropped—ugly stuff. Sentiment is now back near 2022 lows. Inflation expectations jumped too, but let’s be honest: these surveys are increasingly political and disconnected from reality. Even Powell has called the UMich surveys “outliers.” Hard data continues to beat expectations, while soft data—like sentiment—just keeps sagging. Noisy signals, not flashing alarms.
Looking ahead, we’re staring down a busy week of jobs data, which matters more than usual. Recession odds for 2025 have climbed to 40%, and any hiccup in labor market strength will only fan those flames. Meanwhile, all eyes remain on Liberation Day (Tariff Day, if you prefer)—which will either clear the fog on trade policy or deepen the haze.
Market Data for the Week:
SPY & QQQ: Bull Gaps, Bear Traps, and the Battle for Market Direction
Monday opened strong on the heels of a Wall Street Journal piece that sounded—well—almost diplomatic on the tariff front. The result? A nice little bull-gap. But the market, true to its current mood, decided not to trust good news for long. That early optimism evaporated by midweek, as the AI/Semiconductor trade got body-slammed.
SPX bore the brunt of that unwind. The sharp reversal began Wednesday after TD Cowen dropped a bearish note, and Goldman poured gasoline on the fire with a downgrade of the AI complex. You know the story by now.
So now what?
It’s all eyes on April 2nd: Liberation Day. This is either going to be the clarifying policy moment markets are desperately craving—or just another messy chapter in the tariff saga. Add to that a steady drip of better-than-expected hard data (so far defying all those Q1 slowdown forecasts), and SPX sits at a classic inflection point.
If bulls want to reclaim the narrative, SPX needs to build a higher low, push above the 21-day EMA (call it 5600–5650), and retake the 200-day. That would reestablish momentum and set up a run at the next leg higher.
But if we lose the recent March lows? The next likely target is a gap-fill around 5340. That’s the “ouch” zone. And it wouldn’t take much—an escalation in tariff tensions, a bad print on jobs, or a surprisingly weak earnings season could do the trick.
Keep this in mind: Liberation Day has been telegraphed for weeks. Expectations are sky-high. If there’s no surprise, no catalyst, no twist in the plot? We may just see an unwind of protective hedges and some short-term relief. In that case, higher lows could form, and a countertrend rally may resume.
QQQ: On the Edge of a Cliff, or Just Catching Its Breath?
The Q’s are dangling on the edge—literally clinging to the bottom rail of an upward-sloping parallel channel that’s been intact since late 2022. This past week didn’t help. The AI/Semiconductor complex unraveled, dragging the entire tech-heavy index down with it.
Are we at peak pessimism? Possibly. The market’s clearly worried about the “E” in P/E ratios. It’s not just about valuation—it’s about the risk that earnings (especially for AI darlings like Nvidia) may not deliver. Cheap P/Es don’t matter if the “E” starts shrinking.
This next earnings season is going to separate the real contenders from the pretenders.
A push above 477 is key. Reclaim that, and we’ve got a shot at retesting the 200-day moving average. But if the Q’s break lower and lose that support line, we could be revisiting last September’s lows around 450. That path likely involves weak earnings, more tariff chaos, and renewed fears of a slowdown.
IWM: The Small-Cap Stress Test
The small-caps are doing what small-caps do best—keeping us on edge.
Right now, IWM is backtesting what’s arguably the most important technical breakout in the last two years. This is the level that launched the 2024 rally. And just beneath it? The 200-week and 100-week moving averages—solid support structures.
Last week, like all major indices, IWM kicked off with a strong open. By Friday’s close, every index, IWM included, had not only given back the gains but closed on the lows of the week.
So the setup is simple but pivotal: will small-caps form a higher low off this test of support… or will the market deliver another leg down?
If support holds, and we see even a hint of clarity around tariffs—not to mention continued resilience in hard economic data—IWM could catch a bid. From there, the roadmap is pretty clear: reclaim 204–206, break back into recent highs, and then march toward the 209–212 zone. That would fill the gap left behind in March and signal that small-caps are ready to play ball again.
A breakdown here likely means softening economic data, intensifying recession chatter, and, of course, more tariff drama with zero resolution in sight.
DIA: The Dow’s Island Disappears
Last week, DIA came out swinging, up over 2% early on and looking like the most stable of the major indices. It held its bull-gap… until it didn’t.
By Friday, it had given it all back. The bull-gap was filled. The 200-day moving average was lost. It closed below where it started, off about 80bps on the week. Not catastrophic—but a clear momentum fade.
The market’s reaction to the firm PCE inflation data was also telling. Normally, higher Core PCE might spook investors—but not this time. Bonds caught a bid, which tells you the real concern isn’t inflation—it’s growth. Consumer spending is softening, and that’s what spooked the tape.
So, the path forward?
If DIA holds support around 409—the summer 2024 highs—it could form a higher low. From there, reclaiming 422–425 would put the 200-day back in play and set the stage for a run at 432–439. That’s the bull scenario, but it needs cooperation: tariff resolution, decent jobs data, and no nasty surprises in earnings.
Dollar, Bonds, and Oil: Markets Beneath the Surface
The Dollar Dips (Despite the Drama)
You’d think that with tariff headlines flying and risk-off vibes in equities, the dollar would’ve flexed its muscles a bit. But instead, the greenback… sagged. Not much, but enough to raise an eyebrow.
Why the weakness? The key lies in Trump’s new and improved messaging around reciprocal tariffs. While April 2nd was previously hyped as a scorched-earth tariff blitz, he’s recently softened the tone—emphasizing “leniency” and hinting that tariffs might be lower than what the U.S. has endured from others for decades. That walk-back, or perhaps “soft pivot,” allowed foreign currencies (especially the euro) to breathe easier.
On Friday, the EU dropped a particularly interesting note—they’re preparing a terms sheet to negotiate the partial removal of existing U.S. tariffs. That’s a meaningful olive branch, and if this thing gains traction, the euro could see more upside. Technically, a clean break above the 200-week would likely catapult EUR/USD back to 1.11–1.12. Keep an eye on it—especially with the still underappreciated German stimulus in the mix.
Canada and Mexico? Mostly quiet. But Mexico keeps impressing with its diplomatic agility, and Trump’s latest conversations with Canada (via Carney) were reportedly “cordial.” Post-election talks are already on the books for April 28. Looks like Trudeau might’ve been the sticking point all along.
Japan, however, remains in the crosshairs of the auto-tariff issue. That triggered a brief spike in USD/JPY above 151. But as U.S. equities stumbled, the yen did what it does best—snapped back in a classic flight-to-safety move.
The Bid That Shouldn't Have Been (But Was)
Bonds continue to chop like a squirrel on Red Bull. But Friday gave us something interesting. Despite a firm PCE print—headline steady, core ticking higher—bonds rallied. Why? Because consumer spending fell off a cliff. The market isn’t worried about inflation right now—it’s worried about growth.
The University of Michigan sentiment survey didn’t help either. Sentiment cratered, flirting with 2022 lows. And inflation expectations? All over the place. Democrats now expect 6.5% inflation next year, which is higher than what they expected during the peak of actual inflation in 2022. Powell himself has dismissed these surveys as political noise, but the market still reacted—maybe too much.
Even so, the 10Y yield remains annoyingly sticky above 4.2%. Bonds are red on the month, and the rally everyone from Trump to Scott Bessent hoped for hasn’t materialized. Not yet.
Here’s a wild card: what if tariffs are quietly used as leverage to generate bond demand? Imagine this—“Buy our bonds, and we’ll go easy on your exports.” It’s not official policy, of course. But geopolitics loves a backroom deal, and this kind of quid pro quo would kill two birds with one stone.
Looking ahead, the path for the 10Y is likely tied to economic softness. If hard data finally cracks—especially the jobs numbers this week—the 10Y could break down and slide toward 4.1%, maybe even 4.0%. If clarity around tariffs fails to show up, that breakdown gets more likely.
Oil Holds Strong Amid the Storm
And then there’s crude—resilient, surprisingly so.
Despite a broad market swoon and rising recession chatter, oil held firm. That’s telling. Price remains comfortably supported at the lower end of a 3-year range, and after breaking out from a downtrend a few weeks ago, crude has climbed back from $65 to $70 in short order.
If we continue to see support hold above $67.50, a push to $72–72.80 is likely, targeting a backtest of the 200-day. The real trigger to watch is $70—clear that level, and the countertrend rally likely gets extended.
Still, don’t expect fireworks unless we get a geopolitical jolt. The U.S. administration remains focused on energy price suppression, and Saudi Arabia’s been pumping. Macro’s still mixed: China and Europe are stimulating, the U.S. is policy-gridlocked, and recession fears remain front and center.
Interestingly, speculative positioning in crude is still light. Only recently have we started to see net length added back in. If U.S. hard data keeps beating expectations, crude could surprise to the upside—especially with pessimism still baked into broader economic sentiment. Right now, recession odds for 2025 are hovering around 40%. If that gets revised lower, oil could pop.
That wraps up this week’s roadmap.
Markets are in a pressure cooker—narratives are fragile, positioning is twitchy, and volatility is only one headline away. Liberation Day (April 2nd) could provide answers… or just more questions. We’ll be watching closely.
As always, I’ll drop any timely updates in chat as the week unfolds.
Thanks for reading,
— BSR
Disclaimer:
Remember, this is not financial advice. You are fully responsible for your own decisions!
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