Daily Newsletter 4/21/25
Good morning.
The escalating trade war between the US and China is triggering serious concerns about the stability of the global economic system and shifting geopolitical dynamics. Both nations are actively seeking to rally allies, signaling that the conflict now extends far beyond trade disputes and into the broader arena of international power competition.
Rising volatility in Treasury markets and a weakening dollar risk driving up U.S. borrowing costs by eroding the nation’s long-standing financial dominance.
The simultaneous weakness in the dollar and rise in yields suggests investors are demanding higher compensation for holding U.S. assets due to increased perceived risk.
Finance ministers from around the world will gather in Washington, DC this week for the International Monetary Fund and World Bank spring meetings, as the Trump administration pursues a series of negotiations with its trading partners.
The IMF emphasizes that the world economy remains resilient but faces persistent headwinds, with growth expected to remain below pre-pandemic trends for the next five years.
While it may be premature to officially declare a global recession, we shifted to a recession-focused outlook several weeks ago—well before both Goldman Sachs and the broader market consensus adjusted their forecasts.
Amid the current environment of poor liquidity, it would not be unexpected for the Treasury and the Federal Reserve to intervene in support of Treasury bonds. Such action would likely spark a rally in the broader market.
Based on the current mix of technical indicators, market sentiment, and fundamental factors, we believe the stock market is poised for a short-term relief rally. However, there remains a significant risk of a much steeper decline if challenging macroeconomic conditions start to materialize.
We observe certain parallels between the current environment and past events like the Great Recession and the dot-com bubble burst, though we recognize that every recession has its own distinct characteristics.
We anticipate that the current market will follow a pattern similar to previous bear markets. A sharp initial decline, a pronounced bear market rally, and then a likely move to new lows.
OUR TRADES
Given the elevated uncertainty in global markets, we have maintained a significant portion of our portfolio in cash. Over the past week, we executed several successful tactical trades, particularly by opening and closing multiple positions in volatility-related ETFs.
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