Otavio (Tavi) Costa recently pointed out that the downturn in tech and consumer discretionary sectors is on the brink of becoming systemic. It’s spreading across other areas of the market, and this is starting to look like more than just a short-term blip. Given the importance of these sectors to the overall economy, it would be surprising if this doesn’t eventually spill into other parts of the market that have either stayed steady or remained positive this year.
Looking at the big picture, the current administration has little choice but to let things get ugly. The economy is in need of a major reset, and they are walking a fine line between taking the necessary steps and avoiding complete collapse. In the short term, the idea seems to be setting the stage for lower interest rates. The plan? Pin the blame on the previous administration and let the inevitable economic downturn do its job. The more this unfolds, the more it seems like a deliberate crash.
The leverage built into this economy means that when things start to crumble, it is not going to be a slow descent, it is going to be fast and brutal. Once the dominoes start falling, it is going to be near impossible to stop them. The scale of this collapse will be something we haven’t seen in years, and it is hard to see how the market will find its footing in time to prevent further damage. Brace yourself; this is going to get ugly.
Trump’s role in this could be more significant than we realize. He has made moves that are undoubtedly rebalancing the global trade system in a way that tilts things in America’s favor. But there is a cost to this shift, and it is something that most people are missing: U.S. exceptionalism, especially in terms of the global capital flow, is rapidly diminishing. The dollar, once king, is facing an existential crisis. This is not just about a trade war anymore, it is about the slow death of the dollar’s dominance in the global economy.
And speaking of the dollar, the situation is worse than anyone’s letting on. Delinquencies tied to the dollar have just hit a new post-2010 high, and the media is strangely quiet about it. Could this be a deliberate attempt to distract the public from the real issue? The economic implosion that is creeping closer by the day?
Meanwhile, the Nasdaq 100 closed below its 200-day moving average for the first time in over a year. This is a major red flag for anyone paying attention. Historically, whenever the Nasdaq lost its 200-day after an extended run and experienced a drawdown of at least -3.5% within the next two weeks, it triggered a bear market. The signs are there—this could be the beginning of something bigger. On the other hand, if the drawdown stays under -3.5%, the market typically rebounds and posts positive returns a year later. The next two weeks will be critical. Watch carefully. The market might be on the brink of a breakdown, or it could surprise us with a recovery. Either way, things are about to get volatile.
Sources:
https://x.com/TaviCosta/status/1897840553133588798
https://x.com/SuburbanDrone/status/1897719863197810973
https://x.com/SuburbanDrone/status/1897692853049991367