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After plumbing the depths and staring down the barrel of a full-blown “Sell America Inc.” moment, equities are now logging their best weekly rally since 2023. What sparked the mood swing? Bond and currency markets finally stopped wobbling like a drunken sailor — and let’s hope it sticks. Maybe, just maybe, it’s time to stop throwing our critical market-stabilizing toys out of the pram.

Let’s be real — the "Sell America Inc." narrative got way ahead of reality. Wall Street’s price action this week was unhinged, driven more by broken plumbing theatrics than any clean macro signals. But the real issue — at least from my seat, and from what I’ve heard across desks — is that the usual calculus simply didn’t work.

Yields spiked even as risk sold off. The dollar tanked when it should’ve caught a bid. It wasn’t a flight to safety — it was a full-on scramble for clarity.

Markets weren’t trading data. They were trading dysfunction.

As always, when things stop making sense, you know what’s coming: deleveraging. Macro sentiment has cracked wide open — and what we’re seeing now is that liquidity dynamics in supposedly liquid markets are meaningfully impaired. It’s gotten to the point where tiny flows are triggering outsized price moves.

Bottom line? This isn’t about direction — it’s about dysfunction. When liquidity goes missing, even vanilla trades can leave a crater.

But here’s the kicker — you can absolutely take advantage of this kind of market. Both on the overshoots and the undershoots. The algos aren’t asleep — they’re hungry, and they leave footprints the size of a small country.

Take the euro, for example. Yesterday I was long from the 1.1200 get-go — red flag went up the moment US yields rose while Bunds rallied. That’s a clean rotation signal: out of USTs, into Bunds.

Now here’s where it gets wild — later in the day, I wasn’t even looking to add, but my “just-in-case” bid got hit at 1.1265. Funny enough, I’d just written in my market wrap that I was shifting my EURUSD tail risk to a live 1.1500 target — and boom, we printed 1.1489 within the hour. And did I close out? Of course I did. On a move like that, you don’t look a gift horse in the mouth — you take the money and run.

That’s this tape: chaotic, brittle, but tradable — if you know what to watch for.

Honestly, my views have been shifting all over the place — not because the market’s lost the plot, but because my own Fed cut probability matrix keeps reshuffling. Right now, I’m penciling in maybe two cuts, three tops — and only if the data really rolls over. Otherwise, let’s not pretend: medium-term inflation expectations are still hovering closer to 4% than 2%, and that’s not a green light for the Fed to hit the panic button.

But here’s the thing — the Fed’s not just going to sit there while the bond market unravels. They’ve got tools. Just like the PBoC props up Chinese equities and backstops the yuan, the Fed has more than just rate cuts in its arsenal. Think stealth liquidity, a bond market backstop, or something subtler — all on the table if the plumbing groans loud enough.

And let’s talk signals — there’s been a whisper campaign running through Wall Street boardrooms all week. You could almost feel it building. Then came Jamie Dimon — suddenly popping up even more than usual on TV and in the press, which is saying something, because the man’s already got a first-name basis with CNBC. That alone was a tell: something was brewing.

Didn’t take long. Cue Boston Fed’s Collins: “The Fed is prepared to address market functioning if the need arises.” Boom — the quiet part said out loud.

So yeah, forget geopolitics for a moment — the real showdown now is Fed vs. PBoC. And I know which side I’m betting on. The U.S. doesn’t build ghost towns just to look busy.

And yeah — almost forgot — then came China’s popcorn-time move: jacking tariffs to 125%. Pure optics. No bite, just sizzle. Enough to keep the headline adrenaline flowing. But honestly? Even traders looked up and muttered, “Aren’t we already deep into the law of diminishing returns?”

Turns out, Beijing seems to agree.

Because buried under the headline hike was the real message: “We won’t retaliate if Trump escalates, but…” — and that’s your tell. The tariff war, at least on the % escalation front between the U.S. and China, is over.

What comes next? Chapter 2.0 of the Axis vs Allies 2.0 playbook. The gloves are off — and the strategy board just got a lot bigger.

This isn’t about duties anymore. We’re shifting to the next phase. Tariffs were the opening act. Now we’re heading into something deeper — structural decoupling, capital controls, supply chain rewiring. The long game just started.

Now that the U.S. has slapped on a 145% effective tariff and China’s fired back with 125%, we’re officially deep into the popcorn phase. Markets aren’t flinching like it’s 2018 —the marginal US-China tariff headline punch is fading fast.

But let’s not kid ourselves — when it comes to manufacturing imports, the U.S. leans on China a whole lot more than the reverse. That dependency doesn’t vanish with bluster or a Truth Social victory lap.

What we’re watching is an economic reboot by sledgehammer. Precision? Out the window. The White House is trying to fracture the old model in hopes a domestic manufacturing renaissance rises from the rubble. Pain now, maybe payoff later.

Sure, consumers and businesses eat it in the short term. But with services making up 77% of U.S. GDP, even a small manufacturing bump can score big on the political scoreboard.

So yeah — this is the reset play. Whether the bones heal straight, or do we end up with a structural limp? Still too early to call. But second-order effects matter now. Inflation? Guaranteed. The real question — does manufacturing actually bounce?

MARKET WRAP

It got to the point this week where writing a coherent market wrap felt borderline futile — by the time you hit send, the narrative had already flipped. For all the reporters and the headline jockeys out there, you definitely earned your stripes. This was a week where the tape refused to sit still, and just staying on top of it was half the battle.

Bulls, Bears, and Icebergs — Oh My, What a Week

It was quite the decade this week — facetiously, of course, but let’s be honest: few market weeks have packed this much whiplash.

Here’s some perspective. Prior to this one, the S&P 500 had only seen 10%+ corrections compressed into three days four times since the 1950s — 1987, 1998, 2008, and 2020. That’s rare air. Flip the script, and Wednesday’s face-melter of a 9.5% rally now ranks as the third-largest single-day gain on record and the fifth-largest absolute move in either direction across nearly 18,000 trading days. Hats off to the BMO Economics crew for the data dive. Ultimately, the S&P closed the week up 5.7%. That’s not a rally — that’s a full-body exhale !!.

Now let’s dissect it.

If we widen the lens and view the correction across five days, there are at least 11 distinct 10% drops since 1960. Statistically, markets tend to trade higher over the next month, six months, and year following a drop like this. But here’s the caveat — interim downside is common. The longer-term outcome depends heavily on three things:

1. Was the correction technical or sentiment-driven?
2. Will policymakers come in swinging with aggressive fiscal or monetary response?
3. Does this signal a structural shift in the economy requiring asset repricing?

This week? It checks a bit of all three. There’s definitely a sentiment washout at play. But with inflation sticky and the Fed cautious, their hands may not be as free to step in as markets hope. Add in a prolonged trade war — and suddenly, we could be staring down some real structural shifts.

Cue the catalyst: the Trump tariff pause.

The 90-day freeze on reciprocal tariffs lit the match. Tariffs on China are still in place — and rising to 145% following their own 125% retaliation — but broader reciprocal tariffs on other countries have been scaled back to the 10% baseline. That includes Europe, Vietnam, and even the Isle of Penguins. Yes, really.

Still, don’t confuse “less bad” with “good.” The weighted effective tariff on U.S. imports now sits just shy of 30% — the highest since the early 1900s. Not great. The optics improved, but the underlying drag remains.

Let’s talk flows.

• The S&P 500: Still down ~9% on the year and stuck below its 200-day. There’s real pricing of economic stress happening. A growing chorus is whispering “recession.”
• Europe: Holding up better, with rotational inflows and safer-haven status lifting equities ~2%.
• Nasdaq: Took a beating, down 13%. The high-beta tech unwind is real.
• Bonds: The 10Y yield spiked nearly 50bps this week, a move that’s hard to square with equity panic. That disconnect screamed “plumbing stress,” and the basis swap iceberg finally surfaced.
• Dollar: Oddly soft, despite all the fear. That should tell you something — perhaps that the safety trade is being re-routed elsewhere.
• Gold, cash, and defensives: The holy trinity of protection. Short-duration fixed income, staples, and good old-fashioned bullion became the week’s safe-haven darlings.

Bottom line: this week was about two things — digestion and dislocation. Yes, the market clawed its way higher. But it did so on the back of wildly unstable signals, liquidity hiccups, and headline-driven positioning. We’re still living in a world where newsfeeds move faster than models and traders are forced to wing it when traditional correlations break.

Stay nimble. Stay cynical. And keep the popcorn handy — the Axis vs Allies macro reboot isn’t over yet.

More By This Author:

Markets Roar As Trump Pauses Tariffs — And The Real Backstop
Whiplash On Wall Street: Bond Yields Surge, Stocks Rebound Off The Lows — Storm Over Or Just The Calm Before?
Markets In Meltdown: China Retaliates, U.S. Free-Falls, And No One’s Coming To Save You