Monday: What Markets Are Telling Us

05/02/2025 | Unsubscribe

Good Morning!

Here are some important charts and ideas capturing the latest trends in US markets to help you understand what is happening from multiple different perspectives:

🌐 Zulauf Warns: Policy Shocks, Recession Risks, and a Shifting Global Order

Veteran investor Felix Zulauf outlines a complex and volatile outlook for markets and the global economy:

• Market Uncertainty: A 20% correction is possible, but whether it marks a deeper downturn or a temporary pullback is unclear. Zulauf notes that April 7, 2025, lows reflected intense pessimism.

• Global Recession Signals: Weakness in Europe and China, combined with policy uncertainty, rising job losses, and low savings, point toward a looming global recession.

• U.S. Policy Risks: Potential tariffs under Trump could trigger global market shocks, while rising U.S. debt adds pressure to economic stability.

• Investment Strategy: Zulauf favors gold as a safe haven, warns about commercial real estate, and recommends diversified portfolios to weather turbulence.

• Long-Term View: The outlook remains volatile through 2025, but growth could resume if governments adopt effective, coordinated policies.

Watch the full video for all the insights.

🏛️ Trump’s Second Term Marks Worst Dollar Start Since 1974

The chart highlights how the U.S. dollar’s value has shifted after each presidential inauguration since 1974, spotlighting Trump’s 2025 return to office.

🧠 What Does It Mean?

• It uses the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies like the euro and yen.

• Trump’s 2025 term saw the dollar drop by 5.52% in the first 63 days, the worst start for any president.

• Economic uncertainty from trade policies, such as tariff threats, have pressured the dollar.

🔄 Counterpoints & Perspectives on the Dollar’s Decline

While Trump’s second-term policies are being blamed for the dollar’s sharp drop, here are some alternative viewpoints to consider:

• A weaker dollar isn’t always bad (depending on whose perspective you look at it from) — it can make U.S. exports cheaper, potentially boosting overseas sales (not likely to be significant).

• The recent decline might reflect broader global market dynamics, not just Trump’s domestic policies.

• Tariffs could strengthen the dollar over time if they lead to reduced reliance on imports.

📊 Market Signals Break Down: April's Bond-Equity Divergence Alarms Investors

Jens Nordvig highlights a rare financial anomaly in April 2025: the 30-year U.S. Treasury bond yield rose 33 basis points to 4.90%, while the S&P 500 dropped 10% and short-term yields fell — a combination unseen in decades, signaling market distress.

A scatter plot shows historical S&P 500 crashes (down 5%+ in a month) against 30-year yield changes. April 2025’s data point stands out sharply (y = 0.5264x + 1.6502, R² = 0.3151), revealing a breakdown in typical market correlations, potentially driven by policy uncertainty such as Trump’s tariffs.

Nordvig suggests this reflects a loss of confidence in long-term U.S. bonds as risk-free assets, with investors pricing inflation or credit concerns, especially amid a declining dollar.

🔍 Alternative Perspectives on April's Market Anomaly

Jens Nordvig’s tweet highlights an unusual April 2025 event: rising 30-year yields alongside a sharp S&P 500 drop. But there are several counterpoints and broader interpretations to consider:

• Market Overreaction: The divergence may reflect a short-term overreaction to Trump’s tariff policies, not a structural shift. Markets often stabilize once policy effects are priced in.

• Global Factors at Play: Rising yields could stem from international bond demand shifts, not necessarily a loss of confidence in U.S. markets.

• Historical Recovery Patterns: Past selloffs — like during COVID-19 — showed markets can rebound rapidly, even amid disconnects with economic signals.

• Yield Upside May Be Limited: Long-term yields could level off if the Fed holds rates steady, softening fears of persistent bond sell-offs.

🔁 S&P 500 Erases 242 Days of Gains in Sharp Market Reset

Warren Pies explains a "market reset," which shows how far back in time the S&P 500’s price matches its current level — here, 242 days, meaning the index has erased nearly a year of gains.

This reset occurred during a bear market, with the S&P 500 falling 19% (closing price) from its February high, just shy of the 20% drop that typically defines a full bear market.

While the average bear market reset spans 400 days, this one is shorter but still historically significant.

🌍 Currency Shifts Echo 2018 as Tariffs Rattle Global Markets

Robin Brooks’ tweet uses graphs to show how global currencies and markets reacted to U.S. tariffs in 2025, drawing comparisons to the 2018 trade war.

In 2025, Trump imposed heavy tariffs on China, causing the Chinese yuan to weaken against the U.S. dollar — a repeat of 2018’s pattern.

Meanwhile, G10 currencies like the euro and yen strengthened against the dollar, driven by investor concerns over erratic U.S. policies.

The S&P 500 fell as markets feared the tariffs could slow economic growth.

Emerging markets haven’t crashed yet, but risk rises if China continues to devalue its currency.

🌐 Counterpoints & Perspectives on Global Market Reactions

While Robin Brooks’ analysis highlights tariff-driven volatility in April 2025, here are some alternative views to consider:

• Weaker Yuan, Stronger Exports: A weaker Chinese yuan could make Chinese goods cheaper, potentially boosting exports and supporting China’s economy.

• Stronger G10 Currencies = Export Strain: As G10 currencies rise, their exports may suffer due to higher global prices, potentially slowing their growth.

🧠 What This Means:

• $GLD is a popular gold ETF. A huge amount of money was traded in it recently — the 3rd biggest day ever.

• That day also saw a price reversal (it stopped going up and started heading down).

• This happened after gold had already gone up a lot ("very extended") and when everyone was super bullish ("excessive sentiment").

• When too many people are on the same side of a trade (all betting it’ll go up), it often means a pullback is near.

⚠️ Takeaway:

This might be a warning to gold bulls in the short-term: when volume spikes on a reversal after a big run-up, it can signal a trend change or exhaustion. Might be time to take profits or tighten stops if you’re long.

🟡 Gold's Inflection Point: Watch the April Close

Commodities like gold often form sharp tops and bottoms, marked by long candle wicks—big intramonth moves that don't always hold by month-end. These wicks can trap traders who chase momentum too late.

With record volume in $GLD and a possible reversal in play, the April monthly close becomes critical. If gold fails to hold near its highs, it could confirm a short-term top.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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