Friday’s trading saw the S&P 500 inch higher by 0.08%, closing at 5,667.56, while the NASDAQ Composite gained 0.52% to settle at 17,784.05. It wasn’t exactly a rip-roaring rally, but after the bloodbath of the previous month, investors were clearly desperate for any positive news.
You can thank me later if you followed my advice to raise cash.
What drove last week’s modest gain? Don’t get excited.
What drove last week’s modest gains? Some might call it a “relief rally” after weeks of selling. But let’s be real—it was nothing more than quadruple witching, the quarterly event where stock index futures, stock index options, stock options, and single-stock futures all expire at once. And as always, that sparked a flurry of trading as positions were adjusted and contracts rolled over. So, before you start celebrating, pump the brakes.
This market is setting up for a textbook bear trap. Sure, there’s room for a rally once tariff policies are finalized—but don’t get your hopes up. The real disappointment will come when companies either slash guidance or refuse to give any at all during Q1 earnings. And where’s the smart money right now? Exactly where I told you it would be—either in bonds, in defensive stocks (remember that rotation I mentioned repeatedly back in January?) or simply sitting on the sidelines, waiting for a truly undervalued opportunity to emerge.
First Quarter Earnings: The Corporate Reality Check
The first quarter earnings of 2025 are indeed likely to serve as a sobering wake-up call for investors who have been riding waves of optimism without accounting for macroeconomic realities. Let me explain why this “I told you so” moment seems increasingly inevitable.
The Back-End Loading Phenomenon
First quarter earnings typically demonstrate a “back-end loaded” pattern, with significant revenue recognition occurring in the final weeks of March. This creates a natural vulnerability when external factors disrupt this critical period. With reciprocal tariffs scheduled for announcement on April 2nd, we’re witnessing a perfect storm of uncertainty precisely when companies normally accelerate their quarter-end activities.
The Executive Decision Paralysis
Let’s consider the psychology of a CEO or CIO facing this environment. Would any rational executive commit substantial capital expenditures when:
- They cannot accurately forecast demand due to potential tariff-induced price increases
- They cannot reliably predict their own cost structures as supply chains brace for disruption
- They cannot confidently model consumer behavior in response to price adjustments
Of course they wouldn’t. As any seasoned executive knows, capital preservation becomes the dominant strategy during periods of heightened uncertainty. The notion that corporate leaders would blithely proceed with significant investments while staring into this abyss of unknowns isn’t just optimistic—it’s fantastical.
The Coming Earnings Reality
What we’re likely to witness is a wave of companies either:
- Dramatically revising earnings guidance downward.
- Withdrawing guidance entirely under the cover of “market uncertainty.”
- Offering extremely wide guidance ranges that essentially provide no actionable insight.
Each approach represents the same underlying reality: executives lack visibility and are battening down the hatches accordingly. The market, which has been pricing in continued growth trajectories, will need to rapidly recalibrate.
The Inevitable Aftermath
When these earnings reports emerge, we’ll see the usual parade of analysts expressing “surprise” at developments that were entirely predictable to anyone paying attention to fundamental business principles. The market’s reaction will be characterized as “unexpected volatility” rather than the logical consequence of ignoring obvious economic signals.
And so the cycle continues, with rational caution once again being vindicated over irrational exuberance. As any competent business leader would tell you—perhaps with a knowing smile—you don’t commit resources when you can’t reasonably predict outcomes. The market is about to relearn this lesson, evidently the hard way.
First Quarter Earnings Reality Check
The upcoming Q1 2025 earnings season will likely disappoint investors as companies either lower guidance or provide none at all. With Q1 typically “back-end loaded” toward March, the April 2nd reciprocal tariffs announcement has created a decision paralysis among executives. No rational CEO or CIO would commit to major spending without visibility on future demand and pricing. This predictable caution will force markets to recalibrate expectations downward, creating an “I told you so” moment for those who recognized these fundamental business principles all along.
Why Markets Might Rally on April 2nd Tariff Announcements (But Don’t Be Fooled)
When tariffs are announced on April 2nd, we may indeed witness a market rally. This seemingly counterintuitive reaction actually follows predictable market psychology and policy dynamics, though it’s likely to be short-lived for several compelling reasons.
The Initial Rally: A Study in Market Irrationality
Markets often rally on bad news becoming certain rather than remaining uncertain. When tariffs are finally announced, several mechanisms will trigger buying:
- Clarity effect: Markets despise uncertainty more than negative certainty. Once the actual tariff framework is known, companies can at least begin planning around concrete numbers rather than speculating.
- Relief reaction: If tariffs come in even slightly less severe than the worst-case scenarios imagined, algorithms and traders will rush to reposition, creating upward momentum.
- “Buy the news” phenomenon: Sophisticated traders who sold in anticipation of tariffs will close positions, creating technical buying pressure regardless of fundamentals.
- Policy accommodation expectations: Markets will anticipate that the Federal Reserve might delay planned rate actions to offset tariff-induced economic pressure.
Why This Rally Will Likely Be a “Dead Cat Bounce”
This rally will demonstrate all the buoyancy of pavement. As earnings season unfolds in mid-April, fundamental economic realities will reassert themselves:
- Q1 earnings reality: Companies will report the first concrete evidence of tariff anticipation impacts on business decisions and consumer behavior. These numbers won’t lie.
- Forward guidance capitulation: Management teams will either dramatically lower guidance or, more likely, withdraw it entirely while hiding behind “market “uncertainty”—the corporate equivalent of “the dog ate my homework.”
- Margin compression evidence: Initial tariff effects will begin showing in cost structures, with companies unable to pass all increases to consumers in competitive markets.
- Consumer sentiment deterioration: Early consumer reaction data will show spending hesitation precisely when second-quarter projections require acceleration.
Trump’s Economic Policies: Creating Near-Term Uncertainty
The current administration’s economic approach is creating substantial market uncertainty through several mechanisms:
- Policy implementation timing misalignment: Tariffs are being announced before complementary domestic manufacturing incentives are fully articulated, creating an economic gap period.
- Federal Reserve relationship dynamics: The administration’s public pressure on monetary policy is creating uncertainty about central bank independence precisely when market stability requires it.
- Business cycle timing concerns: Introducing significant trade friction at a point when inflation had only recently moderated raises questions about reigniting price pressures.
- Fiscal contradiction signals: Markets are struggling to reconcile promised tax cuts with infrastructure spending plans and rising deficits.
Delayed Economic Benefits: The 2025 Timeline
The potential positive effects of these policies won’t materialize until Q3 or Q4 2025 at the earliest.
- Domestic manufacturing capacity development: Building new production capacity takes 12–18 months minimum, not the weeks that market optimists seem to imagine.
- Supply chain reorganization: Companies need multiple quarters to reconfigure global supply networks that took decades to optimize.
- Labor market realignment: Worker skills rarely match perfectly with new manufacturing requirements, creating transition frictions.
- Capital expenditure cycles: Major companies budget capital spending annually, meaning significant domestic investment may wait until the 2026 budget cycle.
Of course, those of us who’ve observed these policy cycles before recognize this pattern. Markets will eventually reconcile to economic fundamentals, as they always do. The only real question is how many “surprisingly disappointing” earnings reports it will take before reality finally sinks in. I suspect more than a few analysts will be rewriting their overly optimistic projections while pretending they saw it coming all along.
Summary TLDR
Markets eked out small gains last week, but don’t get excited—it was just quadruple witching, not a real rally. The so-called “Magnificent Seven” stocks have been hit hard, just as predicted, and the first quarter earnings season is shaping up to be an “I told you so” moment. With reciprocal tariffs set for April 2, executives are in decision paralysis, meaning lowered or withdrawn guidance will force a market recalibration.
Yes, markets might rally when tariffs are announced—but don’t be fooled. It’ll be a dead cat bounce as earnings season exposes the real economic damage. Meanwhile, Trump’s policies are creating near-term uncertainty, with any potential benefits unlikely to materialize before late 2025. Markets will eventually face reality—the only question is how long it takes.