Hot take: tariffs aren’t the primary driver of the current market selloff

If tariffs were the main driver of the recent market volatility, you’d expect tariff-adjacent names to be the hardest hit. But that’s not the case – instead, the biggest decliners have been the high-beta, speculative tech names that are mostly IMMUNE from tariffs because they don’t sell physical goods. The NASDAQ Composite has suffered a much bigger drawdown (-14%) than either the S&P 500 (-9%) or Dow Jones (-8%).

I believe markets are throwing a tantrum primarily directed at the Federal Reserve. They want MORE rate cuts, and they want them NOW. Growth stocks were priced for perfection 6 weeks ago, and by some metrics even exceeded the ZIRP- & QE-boosted valuations of 2021.

There's some resemblance between current market behavior and the tantrums of 2015-16 & 2018-19, when nothing in the hard economic data suggested a recession was imminent. In both cases, the Federal Reserve caved (i.e. changed their previously-communicated policy forecasts) after ~20% market drawdowns, by delaying ZIRP liftoff for another year in 2016, and pivoting from raising to lowering rates in 2019. And once the policy pivots were announced, markets quickly rebounded to new records within months.