Market Overview, April 29, 2025
Summary
The Nasdaq rebounded 6.5% last week, which the speaker characterized as a technical recovery after extreme underpositioning—not the start of another straight-line bull market. CTA and vol-control strategies were already near historic lows in early April, prompting roughly $26B of equity buying last week; with the VIX still around 20 versus roughly 12 last year, the move was primarily short covering after positioning had become “very clean.”
Tech stocks are actually more defensive than other sectors in the short term because valuations and earnings expectations were already cut by the tariff scare. Google Cloud grew 29% in Q1, merely in line, yet Google maintained its $75B 2025 capex plan and described compute as being in a “tight supply environment”; roughly 1.5B monthly AI Overview users also support the view that semiconductor earnings may not take a major hit over the next few months. A genuine recession would still hurt advertising revenue at Google, Amazon and others—the impact simply has not appeared yet.
Trump’s tariff policy is showing signs of de-escalation, but that does not mean the policy has changed course. The US is trying to build a negotiating template with India, Japan and South Korea within weeks, while the Senate and courts could challenge IEEPA; even if the Senate passes a resolution, the emergency would not expire until 180 days later, the House may not cooperate, and the president could switch to Section 338 or Section 301. The speaker’s view is that policy changes look more like patching loopholes and fixing bugs before continuing the campaign—not ending it outright.
Both the US and China underestimated the other: the US underestimated its supply-chain dependence on China, while China underestimated America’s willingness to keep fighting. China has prepared contingency plans for transshipment trade and tariff escalation since 2017, while the US underestimated how difficult it would be to replace and reconnect supply chains after disruptions in auto parts and other industries; China will also come under pressure as the trading system deteriorates and global demand falls. The speaker compared it to World War I: “Nobody was prepared to fight a war that long.” A temporary truce may simply be a repair job before the next round of conflict.
Large-scale manufacturing reshoring to the US is “basically a fallacy,” in the speaker’s view; the constraints are not tariff levels but decades of accumulated advantages in power, automation and skilled labor. China generates roughly twice as much electricity as the US, its grid is 15–20 years ahead, and it continued to purchase more industrial robots than the US from 2017 to 2023; with the US near full employment and lacking a blue-collar training system comparable to “Lanxiang Technical School,” no administrative order can rebuild a complete industrial ecosystem.
If the tariff path continues, the dollar should weaken mainly against the euro and yen over the medium term, but the move will not be linear. The dollar has already fallen roughly 5% in a month, with current selling pressure coming mainly from financial markets: hedge funds and other short-term investors have sold heavily, while large overseas clients, including insurers, have not yet sold US stocks, bonds or dollar assets on a large scale; they have mainly increased hedges against the Swedish krona and UK and sterling-related assets. “If this is a two-step move, we’re on the first step, halfway through it,” the speaker said. Once real-asset-allocation money begins to leave, the second leg could last longer; but if depreciation triggers a US financial crisis, the dollar could “shoot up instead.”
The portfolio conclusion is to retain some US equity exposure without actively chasing the rebound, with the market’s base case set as high volatility and a downward trend. The 10-year Treasury yield has stabilized around 4.25%, and the speaker rejects the claim that a huge mid-year maturity wall will overwhelm Treasuries; the real risk remains excessive S&P earnings expectations and valuations in a recession. Powell has not been replaced and his successor has not been chosen, so the Fed may be unable to step in quickly. “Unless something Trump does changes my mind,” the speaker said, he will not turn bullish.
Deep dive
1. The Nasdaq rebound was positioning-driven, and volatility makes the old bull-market playbook hard to replicate
After falling for 7–8 consecutive weeks, the Nasdaq rebounded 6.5% in a single week. The speaker traced the move back to early April, when CTA and vol-control strategies were already near historic lows—“basically flat or already at historical lows”—leaving limited room for further shorting.
Trend strategies bought roughly $26B of equities last week, while hedge funds rapidly covered shorts, providing a major source of the rebound. The speaker said equity and FX positioning was “very clean”: funds that needed to run or short had already acted quickly, leaving the rally with a clear short-covering component.
The VIX has fallen but remains near 20, versus around 12 last year. The previous straight-line rally in US equities was powered by low volatility, which encouraged CTAs and vol-control strategies to add leverage; Trump’s policies continue to create unpredictability, so the conditions for a full repeat of that rally do not exist.
2. Tech earnings are holding up better than expectations that have already been marked down
Google Cloud grew 29% in Q1, merely in line with expectations. The market still viewed the result as relatively good because investors are no longer assuming that tech earnings will be revised higher indefinitely. The first round of tariff-related adjustment mainly “killed valuations and killed expectations”; actual earnings have not deteriorated in parallel.
Google maintained its $75B 2025 capex plan and signaled a “tight supply environment.” The speaker inferred that if companies are not cutting investment despite such high uncertainty, AI compute and semiconductor supply must remain tight, meaning industry earnings may not take a major hit over the next few months.
Roughly 1.5B monthly AI Overview users have also helped ease market sentiment. This is not an unconditional bullish signal: a genuine recession would still reduce advertising revenue at Google and Amazon. Tech is simply “potentially more defensive relative to other sectors” because it has already been sold off.
3. Treasury supply is not the immediate risk, and TGA releases are not fiscal improvement
The 10-year Treasury yield has stabilized around 4.25%, providing some support for risk assets. The speaker called claims that a large volume of US bonds maturing around mid-year would trigger concentrated selling “utter nonsense”: refinancing maturities does not equal an equivalent amount of net new supply, and roughly $31B of net issuance in May is digestible by the market.
Treasury’s estimate of roughly $390B in Q2 financing needs does not mean the deficit or debt demand has fallen materially. Constrained by the debt ceiling, the Treasury is maintaining its coupon issuance schedule, reducing short-term bills and drawing down its Treasury General Account at the Fed; the funds enter the commercial banking system and temporarily increase market liquidity.
The original plan may have been to reissue short-term bills and rebuild the TGA after the debt-ceiling issue was resolved on June 30, but the speaker believes reaching an agreement by then will be “very difficult.” He also emphasized that there is still no evidence DOGE has delivered meaningful deficit reduction; of Trump’s 3 potential policy “landmines,” only tariffs have detonated so far.
4. Tariff cooling is tactical repair; institutional constraints are unlikely to stop Trump in the short term
Signals from Bessent and Trump that they do not want further escalation and want China to make a statement formed an important backdrop to last week’s market rebound. But the speaker said the US is scrambling to manufacture a negotiating template: normal trade-tariff negotiations take years, yet Washington now wants to reach a template with India, Japan and South Korea within weeks. He sees a rapid deal as unlikely.
The Senate could vote to block Trump from imposing tariffs under an IEEPA emergency declaration. Even if the Senate passes such a measure, the emergency would not be canceled until 180 days later. The Republican-controlled House may not approve it, making the Senate action more likely to function as a formal constraint than a decisive one.
Court cases, including those involving CIT, are also challenging presidential authority. Even if the Supreme Court ultimately rejects IEEPA, the speaker believes the administration could shift to tools such as Section 338 and Section 301, particularly against China; litigation will be lengthy, and the executive branch’s path is unlikely to be closed quickly for at least the next few years.
The speaker explicitly preserved the uncertainty: “I’m not a political commentator either, so I can only say this is my personal judgment.” His base case remains that the tariff war will be “all hat and no cattle”—not necessarily ending, but more likely being handled hastily. Policy reversals would represent loophole-filling and improved tactics, not abandonment of the objective.
5. Manufacturing reshoring is running into the physical constraints of an entire industrial ecosystem
The US underestimated the engineering difficulty of severing supply chains. Using an auto plant as an example, the speaker said that removing one component from the production line and finding another supplier requires every interface, part and process to be reconnected; “the entire factory has to shut down.” Components cannot be replaced smoothly the moment tariffs take effect.
The speaker said tariff policy could see some relaxation on May 2. Reports have suggested that auto parts might receive reimbursements, alongside speculation about exemptions for certain Chinese components. In his view, this exposes the lack of preparation: rare earths and many components cannot be replaced immediately, so the impact of supply-chain breaks is far greater than policymakers estimated.
Manufacturing is first and foremost an ROI and energy game—“turning minerals and people into products.” China generates roughly twice as much electricity as the US, its grid is 15–20 years ahead, and it purchased more industrial robots every year from 2017 through 2023. These are the results of decades of coordinated investment; once a country falls behind, catching up quickly is difficult.
Labor is an equally rigid constraint. The US is already close to full employment, lacks a large-scale blue-collar training system, and cannot use immigration policy to fill skilled-worker shortages quickly. The speaker also cited data showing that roughly 40% of the population has a BMI above 30, underscoring the limited labor base available for manufacturing: “You don’t have the people… how can manufacturing possibly come back to the US?”
6. A temporary US-China truce could prolong the conflict rather than restore the old trade order
Since 2017, China has done more to prepare for tariff wars, transshipment trade and foreign-trade circumvention, leaving it better prepared for the conflict than the US. At the same time, the speaker believes China underestimated America’s political resolve and will not easily concede simply because it holds the early advantage.
The global goods system was already “leaning towards over supply.” The US exports the privilege of issuing the world’s reserve currency and continues printing dollars, while China has long faced excess supply and deflationary pressure. If the trading system continues to fracture, the US will struggle to replace China’s supply in the short term, while China will be “in a very difficult position” over the long term as global demand falls.
The World War I analogy captures the speaker’s long-term view: the parties initially expected the conflict to end within 3 months, then spent 4 years patching things up between temporary truces and renewed fighting. Trump needs to maintain the MAGA base and his leadership position within the GOP, making continued pressure more likely than a complete withdrawal of tariffs.
7. The dollar has completed its first leg; the ultimate direction depends on whether Trump changes course
The dollar has fallen roughly 5% in a month, but dealer flow shows that current selling pressure is coming mainly from financial markets: hedge funds and other short-term investors have sold heavily, while large overseas clients, including insurers, have not yet sold US stocks, bonds or dollar assets on a large scale. They first increased hedges against the Swedish krona and UK and sterling-related assets, shifting from betting on dollar strength without hedges at the start of the year to adding protection.
The speaker described this as a 2-stage move: “We’re on the first step, halfway through it.” If the US continues its current tariff strategy, the next stage could involve long-term institutions directly selling dollar assets. The second stage could take longer and would likely show up mainly as dollar depreciation against the euro and yen, rather than necessarily as yuan appreciation.
Sharp rebounds will still occur along the way. Some investors have taken profits on binary options without continuing to roll their positions, while summer holidays could create a pause. In the most extreme scenario, a falling dollar could hit US equities and the financial system, triggering a crisis-driven demand for dollars and causing the currency to surge instead.
The speaker is retaining some US equity exposure because “we really don’t know what exactly he’s going to do.” But as long as tariff policy continues, he still believes the S&P is overvalued in a recession scenario. Powell has not been replaced and his successor has not been chosen, so the Fed may be unable to provide a short-term backstop; the market will be “very volatile, but directionally trending down.”