EUR 48.49 For Business Accounts Only

Vermilion ETF Pathfinder: Actionable ETF research & Ideas

Tariff Tantrum Underway; Market Dynamics Still Risk-On

As discussed throughout the first half of January, we continue to believe that tariffs will mostly be used as a negotiation tactic, and much like Trump's prior presidency, will be much less impactful than feared. We anticipate the Canada/Mexico tariffs to be resolved relatively quickly, and therefore we view the latest pullback as a buying opportunity. Bottom line: market dynamics remain risk-on, and our outlook remains bullish as long as the S&P 500 remains above 5850 and 5600-5670. While we expect an eventual breakout above 6100 on the S&P 500, the latest rejection suggests more consolidation below 6100 for another month or so is another possibility.

Market Dynamics Remain Risk-On. High yield spreads are at 17-year narrows. The major indexes across the market cap spectrum remain in uptrends. The U.S. dollar (DXY) and 10-year Treasury yield display local tops that could easily turn out to be major tops. WTI crude oil and gasoline prices (UGA) remain in long-term downtrends. Interest rate volatility (MOVE index) continues to stabilize and move lower. Discretionary (XLY), Communications (XLC), Financials (XLF), Services, and many other high growth risk-on areas are near new RS highs, while defensive Sectors such as Staples (XLP) are underperforming. Europe's EURO STOXX 50 displays a 9-month base breakout and MSCI EAFE (EFA) is reversing its 4-month downtrend. Bitcoin remains near all-time highs and is above $90,000-92,000 support. Discretionary vs. Staples ratios (XLY vs. XLP, RSPD vs. RSPS) remain in uptrends This is all risk-on behavior that is consistent with an equity bull market.