🍔The Short Squeeze is On

Can this explosive market rally continue?

With the SPX rebounding over 20% from the lows, everyone is worried that the rally has come too far too fast. The only other parallel of such a fast rebound in recent history was the Covid recovery. Can the rally continue? We think it can. In this post, we’ll look at the positioning dynamics that are driving the rally.

China tariffs delayed

The big news this week was the 90-day delay of reciprocal tariffs on China, even though they fell short of a formal trade deal. US tariffs will return to 30% and China’s tariffs to 10%. This is likely what Trump intended in the first place, rather than the unintended 145% escalation which was effectively an embargo.

It is clear Trump doesn’t want to cut off trade, just tax it, and this reset was necessary to alleviate pain on both sides. This is not so much a “war” as it is a “poke” to recoup wealth from other countries. That’s why mechanisms were put in place to prevent future escalations with China. The reversals also came with various concessions such as resuming rare earth metal exports and removing non-monetary barriers.

The reversal was larger than anyone was predicting, and the S&P500 shot up over 3% on Monday. Where to from here? We published the below chart last week showing trade uncertainty has peaked and is coming down. The reduction is temporary for 90 days, but as long as the worst of the trade war has passed, the bull market rally remains intact.

Worst of trade uncertainty is over

American diplomacy…

The rest of this article is paywalled. Inside, you can read about:

• Can this short squeeze continue?

• Trump’s new deals with the Middle East

• Shifting priorities to domestic fiscal

• Inflation is cooling

• Drug price cut