Stocks are getting hammered after President Trump's Reciprocal Tariffs were larger and broader than economists anticipated. Retailers and tech are leading the way lower early, which has been the case since this sell-off started to pick up steam in late January.
The immediate impact will hammer the margins of companies importing and/or manufacturing which, in the market consumer world is almost anything you can think of, to one degree or another. The declines in the pre-market tends to reflect worse-case back of the envelope calculations for how hard companies will be hit based on the announced tariffs which, it should be noted repeatedly, are "immediate", "permanent" and "open to negotiation". Three words not typically used to describe the same action, yet here we are.
Take Nike. Please. Nike produces 50% of its shoes in Vietnam, 18% in China and 27% in Indonesia.
Going into the news conference Nike had probably been planning to shift some production around to whichever countries got the best terms. If so, this was a very bad moment in Beaverton:
Is it worth it for Nike to move manufacturing to existing Chinese factories, where the tariffs only going higher by 34% to avoid the 46% additional tariffs proposed for Vietnam? Let's just say Nike isn't facing a great set of choices when it comes to making the product the company needs to arrest its freefall.
Wall Street was quick to express doubt:
Other companies in related spaces acted much the same way, depending no whatever speed-calculations analysts were able to come up with to reflect what seem to be a rather fluid set of rules.
The point is, it's ugly but not entirely irrational. Two weeks ago I wrote about the bottoming process:
"An Unquantifiably large negative confluence of negative catalysts starts to form. Uncertainty is bad but most people buy the dip. But then the news gets worse. And relentless. The selling builds steam as consumers and businesses start missing/ guiding lower. Indices fall (>10% or it doesn't count) but the damage is way, way worse under the surface. There is no place to hide.
[Emotionally the short version is 1. "Buying the dip, thanks for the free money, Market". 2. "I'm still up huge and can ride this out" 3. "I should have taken some profits" 4. "It's that idiot's fault I'm losing money and I hate Bankers/ Traders / Shorts and this is all a scam" 5. "Capitalism has failed. I'm selling and living in an RV"]
Then we bottom."
It's early but this morning feels like somewhere between 3 (regret) and 4 (anger and blame).
This is why we make a plan. It's why I keep ranting about bottoms being a process rather than a moment. This is when we can make some money if we keep our heads.
It's not all bad out there. A lot of these drops are just reversing the inexplicable rally into the news. There are opportunities out there if you're willing to look for them. Here's what I'm doing in the Indefensible 10 portfolio.
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