Sell In May And Go Away

Too late now...

The pattern that I observed two blog posts ago is that Trump would escalate against a given country, markets would tank and then Trump would declare victory by capitulating at a much lower tariff level. Then markets would take off again. This pattern has repeated since the April 8th low, first for global tariffs, then China tariffs, and most recently European tariffs. The pattern became so obvious that it became a trade on Wall Street called the "TACO" trade, as in Trump Always Chickens Out. Unfortunately, I suggest that acronym has now doomed markets to a prolonged and nasty trade war, because Trump will not want to be viewed as weak. This is something I noted on Twitter yesterday but was also picked up by Bloomberg overnight: This TACO Gives Trump Indigestion. Sure enough, this morning, having fumed for a couple of days over his new moniker "TACO man", Trump has decided that China is already violating their nascent trade "agreement", which wasn't an agreement at all, it was merely a temporary truce.

Meanwhile, the tax cut bill is still facing resistance in the Senate and now the trade war is already heating up again.

None of which is priced into markets.

In other news, retailers this week warned that tariffs are already affecting their business and prices are going higher.

"Best Buy on Thursday missed quarterly revenue expectations and cut its full-year sales and profit guidance as higher tariffs increase the costs of many consumer electronics that it sells."

This too wasn't supposed to happen. Weren't all tariffs supposed to be paid by the exporting country? What happened?

Nevertheless, bullish pundits continually point to backward looking data to argue that inflation remains contained, however they will learn the hard way that driving forward while looking in the rear view mirror is a bad idea. Economists have always missed the turn in the economy because they were looking at lagged data. But now bullish market pundits are doing the same thing. Why? Because they are all in massive denial and they all want to believe that Trump's economic agenda will lead to higher markets.

Meanwhile, the locus of the trade war however remains Technology. This week Nvidia CEO Jensen Huang warned that Nvidia is getting totally shut out of China by the Tech War.

"China is one of the world’s largest AI markets and a springboard to global success," Huang said during the company's earnings call. "With half of the world’s AI researchers based there, the platform that wins China is positioned to lead globally."

"Today, however, the $50 billion China market is effectively closed to US industry"

I don't know if this is good or bad - to be the leader in developing killer robots - however, we know that for Nvidia and the Nasdaq-listed Tech sector, this is the end of the hyper growth phase. This is the TRUE DeepSeek moment.

In summary, global policy uncertainty is at a record high and yet this has been the biggest two month (8 week) melt-up in global markets to a new all time high since the top in 2007.

That is the bull case in a nutshell.