March Madness Monday Market Vibes

Thoughts on where we've been, where we are, and where we're going.

Good afternoon & Happy Monday.

With March Madness delivering some amazing games & after a weekend of reading, here’s where I’m at.

The vibes are still in the “sell the rip” camp despite a nice “risk on” move today.

To me, markets feel like they’re trying to keep it together during a panic attack. The surface looks calm, but underneath everything’s twitchy. The S&P just logged its first green week after a nasty 10 percent drop in three weeks. Quick, emotional, and sharp. Volatility has crept back in. Not in your face, but hovering. Everyone’s watching April 2 like it’s the season finale.

They’re calling it “Liberation Day,” but let’s be honest. It feels more like tariff roulette. Trump wants reciprocal tariffs, matching what other countries charge on U.S. imports. In theory, it sounds fair. In practice, it could blow up trade flows and send markets into chaos. Investors are edgy. Some countries are scrambling to cut deals. Others are bracing for a hit. The street is split. Some think it’s classic Trump noise that fades after the headlines cool off. Others think it could be the start of something bigger. Either way, it’s making the market fragile. Less conviction. More drift.

And if we’re paying attention, Trump has a pattern. Make a loud move, get the reaction, then soften the blow. He did it with Canada. He did it with Mexico. So if markets sell off into the announcement and he backs off later, that’s your entry point. Until then, lighter positioning is probably the way to play it.

The Fed isn’t helping either. Last week Powell came off calm and let the market price in three rate cuts without much resistance. All while inflation is still sticky and the data remains mixed. Almost as if, we’re sitting in the stagflation waiting room. Growth is cooling. Prices are still pushing. And no one really knows what the Fed will do next. There’s no clean story to trade. Just chop, tension, and speculation. So we’re 2 for 2 on the “no clear direction” score card.

Under the surface, past leadership is cracking. The so-called Magnificent 7 are looking more like the Bag 7. Microsoft just had its worst stretch since 2008. Tesla hasn’t printed green in over two months (it’s absolutely despised sentiment wise), but I do love this nice 10% move today! Apple is barely hanging on. The uber premiums they used to command are fading.

Hedge funds are getting out. And long-onlys just saw their biggest equity outflow in three years. Retail is still in the game, but even they’re hesitating. And things are “broadenening out” with equal weight SPY (RSP) outperforming their more mega cap concentrated peers.

And on the economic front, recession whispers are building again. Google searches are climbing. Credit rejection rates are up. Consumer sentiment is slipping. But the data? Still hanging in. Retail sales look fine. Industrial production just hit a new high. That tension between what people feel and what the numbers show is why this market feels unstable. Price action is kind of in line with this “maybe recession” vibe too.

And with March and the end of Q1 fast approaching, flows matter right now. Buybacks are slowing because of blackout windows. And on the other side, pensions are expected to buy thirty billion dollars of equities into quarter-end. That’s a big number. It won’t spark a rally by itself, but it could support the market.

The market astrologists looking at the planets will also note that Q2 is typically a stronger seasonal period for equities. One thing on my mind though is that Q1 will likely show one of the first real drawdowns in 401(k) statements that retail investors have seen in a while. That psychological shift matters. Fast drawdowns, like the one we just saw, often lead to longer-term rallies. But the market’s still holding its breath. April 2 remains the overhang.

Zoom out, and something bigger is happening. The machines are moving. Systematic funds like trend-followers and quant shops are shifting hard out of U.S. equities and into Europe. These are the CTAs. It’s a boring name but an important group. When they move together, they can tilt markets. Right now, they are positioned for U.S. underperformance and European strength.

One of the big places they are rotating into is European banks. And the setup makes sense. These names are cheap. They are sitting on capital. And they have room to return it. The flows are supportive. These banks do not need to grow. They just need to survive and pay out. In a defensive tape, that’s exactly what you want. A place to hide that still pays. I wrote about them here. I favor the UK ones, and while the whole sector has been strong, Spain and Italy have outperformed.

Japan also looks interesting all things equal. Positioning is still light and valuations are attractive. Seasonals and dividend flows are helpful. But the yen is soft and the Bank of Japan is still indecisive. I haven’t allocated here yet, but the bull case does make sense.

Brazil is on my radar too. Not because the macro is great, but because sentiment is so bad. The real got smoked during the dollar rally. Lula is deeply unpopular. Brazilian financials are unloved. But that’s the setup. If the dollar stays soft and things stop getting worse, these names could move. I wrote up STNE and PAGS recently and you can check it out here: Brazilian Fintech Write Up - a day does not a trade make, but they ripped today while BBD is down and NU is more flat.

And that leads to the dollar. Over the last year it has been a wrecking ball. Strong dollar, weak everything else. But lately it has started to back off. That has given emerging markets and commodities some breathing room. Trump does not want a strong dollar. He knows it hurts exporters, tightens financial conditions, and wrecks sentiment. If the dollar starts ripping again, expect him to push back. Verbally at first. Maybe with policy later.

So how do you manage this?

You stay defensive. This is not the time to swing for the fences. The trend in big tech is still lower. If the Fed cuts this year, it won’t be because they want to. It will be because something broke. Let go of the soft landing narrative. Do not try to catch falling knives. You do not get bonus points for bottom-ticking.

Lean into what is working. European banks. Select names in Japan. Oversold Brazil. These are not hype trades. They are places to hide where you can still make money. The machines are rotating there. Flows are backing it up. You do not need to be a hero. You just need to be smart.

I’d also point out that the longer term bull case for US bank investors is there so long as there is no recession. That of course is a big if right now, but if it’s resolved the US banking sector should perform real well. As should Investment Banks (I recently took shorts off) and so should Private Equity. If you want to read up on the historical parallel I see for banks and in particular big banks (SLR relief, lower capital charges) then read this one here:

The biggest picture is that the market is uncertain. For me, no point being a hero. As they say, there are no style points.

As Buffett likes to say, “The stock market is a device for transferring money from the impatient to the patient.” Stay patient. Stay disciplined.

The best is ahead,

Victaurs