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After weeks of pain, the S&P 500, Nasdaq, and Dow Jones finally closed in the green. Not even the $4.7 trillion in quarterly futures and options expiring Friday, known as the “quadruple witching,” could shake investors’ optimism. But does this mean the sell-off is over and a rally is beginning?
As much as the bulls hope for a strong rebound, the fundamentals still look weak. Starting with the main driver of volatility in recent days, although Trump has suggested some “flexibility” in his approach to tariffs on most US trading partners as of April 2, there have been no concrete details.
Trump does not seem concerned about how his actions could undermine the US dollar’s status as the world’s reserve currency (not for nothing the DXY remains under pressure). At the same time, foreign investors pull money from US equities and move it into their home countries or alternative markets.
As for last week’s Fed meeting, Jerome Powell’s optimism assuring the markets that a recession is not on the horizon seems to have been totally discounted. Now, what we are left with is that the Fed has revised its GDP growth forecasts: from 2.1% to 1.7% for 2025, from 2% to 1.8% for 2026, and from 1.9% to 1.8% for 2027.
What could drive the markets?
The main trigger for uncertainty (tariffs) could easily be resolved if Trump simply posted on his social media that he is backing off protectionist policies or at least postponing tariffs for a couple of months. The negativity would probably fade. But that has not yet happened, and it is unclear whether it will.
If things continue down this path, plus rising tensions in the Middle East, overall sentiment in the US could darken further. The hope now is that the massive layoffs will dampen the labor market outlook along with the deteriorating GDP outlook, forcing the Fed to act sooner than expected.
