Financial Markets
This week the S&P500 and the NASDAQ 100 recovered 5.7% and 7.4%, respectively. The S&P seems to have support at ~5000 and ~5200. The small cap index (Russel 2000) was up by 1.8%. Trading volume spiked on Wednesday (tariff suspension announcement) but was more subdued on Thursday and Friday as the markets chopped up and down looking for direction...
The price action on precious metals was also positive. Gold made a big move (5.6%) and closed the week at 3236$, another all-time-high. Gold may retrace back to ~3100$, at the top-end of the previous trend. Silver also made a big move, but seems stuck in the range 29-34$/oz.
During the week, WTI momentarily hit 55$, but recovered and closed at ~61$/bbl. If it continues falling, the next support level is around 54$.
Bitcoin was up by ~8% and is now around 84600$. Bitcoin has been holding up pretty well given that it is usually considered a risk asset and it should have sold off together with the stock market on the previous week! It is probably too soon for a Bitcoin selloff as retail investors are not panicking or in the need for liquidity - yet. The key resistance and support levels on Bitcoin, for the short term, are 92k$ and 72-74k$, respectively.
The relative strength of the US dollar (DXY) fell abruptly and closed the week at 99.7, which is likely related to the stress in the bond market. The EUR/USD is around 1.136$, the GBP/USD is at 1.308$, and the USD/JPY is at 143.44 JPY.
US M2 money supply at the date of 24th February 2025 was up by 0.5%, showing a slow increase after being unchanged in January. If the money supply was going down, it would be another warning sign for the economy and equities. If financial stress in the banking system continues piling up, we will probably see a decrease of the money supply...let's wait...
The national financial conditions index (NFCI) released at 31st March 2025 loosened by 0.32%. Note that this indicator is delayed by two weeks.
The VIX closed the week at ~37, showing less panic than in the previous week, but it's still a relatively high level. Although risk premium is reasonable, the overall systemic risk in the stock market and overall uncertainty about the US economy is correspondingly high. Don't sell puts unless you are really comfortable buying the underlying asset (cash-secured puts)!
Comment Section
We replicate part of a good CNN article that explains this week's bond market selloff:
SOURCE: https://edition.cnn.com/2025/04/11/business/bond-market-trump-treasury-yield-rates/index.html
"
Global markets are reeling over President Donald Trump’s haphazard approach to tariffs and an escalating trade war with China. Stocks have been volatile, and an unsettling shift has emerged in the bond market.
Earlier this week, as stock markets around the world declined, US Treasuries also sold off. Stocks and bonds declining in tandem raised red flags.
Typically, when investors sell off stocks in times of crisis, they pile into US Treasuries, seeking the safety of an asset backed by the full faith and credit of the US government.
Yet as stocks declined, investors abruptly sold off US Treasuries, raising questions about how much they value the promises made by the US government to pay its debts amid concerns about how tariffs will impact economic growth.
The sell-off in bonds was so unsettling that it spooked the White House.
“People were getting a little queasy,” Trump said Wednesday as he told reporters he was watching the bond market.
“The bond market is very tricky,” he said.
While previous outcry from Wall Street, economists and lawmakers had yet to make Trump step down on tariffs, it was the turmoil in the bond market that made him blink and delay many of his tariffs.
“The ‘blink’ came sooner than we expected, probably forced by the markets,” said Mohit Kumar, chief economist and strategist for Europe at Jefferies, in a note Thursday. “The reversal is in sharp contrast to the fanfare with which Trump unveiled his tariff policy just a week ago.”
The yield on the benchmark 10-year US Treasury note spiked as high as 4.5% on Wednesday. It was a whiplash reversal after falling below 4% and hitting its lowest level since October just days before. Yields and bond prices trade in opposite directions.
US Treasuries are considered one of the safest corners of the market. It’s where investors park their cash during economic turmoil and bouts of uncertainty. When stocks and bonds decline together, investors get spooked about broader economic stability. The trend is so unusual it’s associated with moments of extraordinary uncertainty, like the pandemic and the 2008 financial crisis...
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The only remaining question is...who were the bond market vigilantes? And are they happy enough with the tariff suspension?
We need to be extra careful in tumultuous times like this. If a liquidity event occurs, where banks, hedge funds and other institutions start getting margin calls, the volatility can be extreme in both the stock market and the bond market.
This is the time to be conservative with your liquidity. Prices will probably drop some more! When asset prices become truly cheap, buy them! Now is probably not the time yet...
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