Unconventional and uncertain

The major equity indices in the U.S. tumbled yesterday between 2-4%. As usual, not a single factor can be pointed out, but it’s the combination and accumulation of some of them that creates the A-ha moment for the market. Among them: (1) the potential impact of tariffs on growth, (2) the Inflation report on Wednesday, where higher prices are expected and (3) the potential government shutdown on Friday. On top of that and as an accelerator, the Yen carry trade is being unwound, and momentum based strategies (CTAs) may be turning short as the negative sentiment accelerates. Bond yields are down, opening the debt rollover window for Mr. Bessent, while the Fed probability of cutting rates next week is close to zero. Every risk trade is being reversed: Mag7, growth or crypto are down, while defensive strategies are holding the walls. While we can build the case this market has the

Ingredients to take this correction into bear market territory, we can also acknowledge that part of the damage is self inflicted, as the Trump administration is trying unconventional measures to reposition the U.S. economy within the existing world order, while pushing the status quo in terms of trade, defense spending and immigration. Next data points: inflation report tomorrow and the Fed next Wednesday.

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