We now have a full V-shaped recovery in stocks (from the trade war).
And it comes with a first "deal" on trade.
The V in stocks gets us back to the April 2nd date, when Trump first revealed details on broad-based tariffs, but it doesn't get us back to this March 25th day, denoted in the chart.
What happened on March 25th?
Moody's warned that U.S. fiscal strength had "deteriorated further."
This was particularly significant, because they assigned a "negative outlook" on the U.S. credit rating back in 2023. And that negative outlook, by their definition, increases risk of a rating downgrade "over the next one to two years."
And we are in the latter part of the time window.
And now, it just so happens that focus is turning to a new budget and raising the debt ceiling.
So, Moody's telegraphed a downgrade in late March and that has marked the high in stocks for six weeks. And if we look back at the S&P U.S. credit downgrade in 2011, and the Fitch downgrade in 2023, both surrounded … debt ceiling issues.
So, are stocks out of the woods? Probably not.
If we look back at that 2011 U.S. downgrade, it was a significant shock to global markets, which amplified stress that was already present in the European sovereign debt markets. And over the next half year or so, Europe was taken to the brink of sovereign debt defaults — until the European Central Bank stepped in with the promise to do "whatever it takes" to save the euro.
Global government indebtedness is worse today than it was in 2011.
With that, as we've discussed often here in my daily notes, major turning points in stock markets have historically been influenced by some sort of central bank action.