The US and China have absurd levels of reciprocal tariffs at the moment. If you believe these tariffs are in place, then the global economy is in trouble, and you should be bearish. The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true for the economic effects. These will include higher inflation and slower growth.
We know markets have gotten very pessimistic, having priced in a 60% probability of a recession. Tariffs are highly likely to generate at least a temporary rise in inflation. However, if tariff negotiations deescalate, then the probability of a recession isn’t that high. I think there’s still a big window for markets to have a large rebound. But the real question lies in the path of deescalation.
We are in a bear market. I mean, we are. So many stocks got absolutely destroyed before this uncertainty happened in the market. If we define a bear market as stocks feeling like a grinder where you’re losing money, I’d say it really started in December because markets were churning even through the February high. But if I were to define a bear market as unleashing a type of financial tightening that leads to a recession, it feels like a bear market for the average person.
As Tom Lee noted, if it feels like a bear market to you, you’re not alone. Ever since December, XRP has not made much headway. Yes, it has had its ups and downs, but progress hasn’t been significant, nothing like what we saw in November. This has left many frustrated. However, here’s the deal: deescalation is something we’ve seen every single time previously when it came to tariffs, and we know this causes huge rallies based on the last three or four examples we’ve had in the last four months. This is something that will have big impacts on the future of the US economy, the worldwide economy, and the price of XRP, stocks, and real estate.
Tom Lee’s Perspective on the Market
There are two schools of thought that people are fighting. One is the tactical brain, which looks for confirmation that this is a bottom by seeing stocks rally on bad news. The other is the long-term investor brain. As someone with a long-term perspective, I have a lot of confidence that US companies will navigate through this treacherous time. Stocks are hugely oversold. You never really lose money buying the VIX at 50 or when the percentage of stocks above the 200-day moving average drops to 15%. Historically, these are almost guarantees of positive 1-year, 3-year, and 5-year returns.
So, it depends on which brain you’re wearing today. But I’d say the majority of our clients are trying to be tactical. If this is a matter of who makes the overture first or blinks, but we know it deescalates, then I think the downside risk has largely been priced in, and stocks can actually do really well into the rest of the year.
I would be buying stocks today. One of the things we did for our clients last night was to look at what’s called “sold-out” stocks, which are worse than oversold. Sold-out stocks don’t go down because there’s a lot of bad news already priced in. A lot of stocks that didn’t make new lows on Tuesday, April 8th, made their lows a month ago and had lower volume on that day. These are what I’d call “washed-out” stocks. A group I think has been washed out is the MAG 7, which includes stocks like Tesla. I’d look at the MAG 7 as a place to expect a rebound.
Market Conditions and the White House Response
Now, we’re left with the rubble of decision-making in the White House, and the damage has been done. CEOs have no visibility whatsoever. Consumer sentiment is down, inflation expectations are high, and earnings expectations have taken a hit recently. There’s no ability to make guidance. So, what if the damage has already been done?
It’s important to note that this has only been 10 days. While it’s been a high-amplitude shock, it’s still a short-term event of 7 days, so someone could restart the patient’s heartbeat. The White House is now keenly aware that Main Street can’t handle a huge deleveraging because that would lead to job loss. They are listening to CEOs. I think there’s a big window to repair much of this damage, and at the other side of this, we have reciprocal tariffs in place that are acceptable, tax policy changes, and less regulation. So, I actually think the 2026 outlook is still quite good.
There’s a call at work and a couple of puts. The Fed’s liquidity put was in evidence when Collins made her comments today, and we know the Fed put on rates is much lower. The White House has a policy put because we know you can’t brinksmanship the global economy to a halt just to try to get China to blink. I think the White House exercised the Navaro put, replacing him with Besson. Markets are becoming a little desensitized to the situation.
Investor Sentiment and Future Outlook
If you had your investor hat on rather than a tactical one, you’d see that really good opportunities are emerging. The number of stocks below the 200-day moving average is just 15%, which historically is a strong buy signal. The VIX has also spiked above 50, and it almost always pays to buy stocks when the VIX is that high. In the near term, it’s a roller coaster. There are a lot of zigs and zags, even over the weekend. But everything that happened, including the Sunday further explanations, is unequivocally positive for stocks.
Seeing that rebound is possible is great news. Obviously, this depends on the Trump administration at this time and whether or not they’ll deescalate or escalate further. If they escalate, it will cause more pain, but I think we all hope that won’t be the case. Nevertheless, we are prepared for it if it does happen. We’ve bought a lot of XRP at lows and sold a lot of local XRP tops on the futures side, which has made us a lot of money.
However, some pessimism needs to be factored in. If we are truly sold-out, as Tom Lee describes, this is a concerning sign. There’s very low liquidity, and as the Fed pointed out, inflation is likely to rise. We all know that when inflation goes up, the Fed tends to engage in quantitative tightening, raising interest rates. This is the opposite of what Trump wants.
Because the Fed is putting out messaging about inflation rising, Trump is essentially saying, “We need to get rid of Jerome Powell immediately because he’s not lowering rates.” Trump understands how dire the situation is, but unfortunately, he doesn’t control the Fed. Meanwhile, China, his biggest competitor, is printing a lot of money. This creates a very tight situation for Trump, where he must pressure the Fed to act. If they don’t, it could be pretty bad for the US economy.
Tom Lee’s View on Inflation and the Dollar
Tom Lee suggests that if we didn’t have to consider tariffs, inflation is definitely tracking below expectations. Core inflation month over month is at 0.0056, which is literally hitting a wall. Is that for good reasons or bad reasons? Lee believes it’s for the right reasons because oil and food prices are off the boil, and shelter is cooling to a 2% rate. This is what you need to get inflation back down to 2%.
As for the worst-case scenario of dollar declines or 10-year yields, Lee agrees that people might sell treasuries and dollars to buy other assets. However, he’s not in the camp that this is sustainable. The US remains the most important player globally. The best and most important companies in the world are American companies, and they continue to produce the best shareholder returns. While there might be a marginal shift, Lee believes that US companies will adapt to the situation.
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Future Outlook for US Markets and XRP
Looking ahead, Lee believes there is a lot of reason to be positive. The tariffs have been dialed down, giving companies some probation time. This will allow markets to look past any negative earnings guidance. It’s also been encouraging to see Tesla rally, as it was one of the hardest-hit stocks initially.
There are several reasons to be positive about the coming months, including tax deals and some recovery from technical damage. Lee believes there is a strong leg higher coming for the markets. This is a time to prepare for the future of XRP, as there are significant opportunities to capitalize on. If you aren’t prepared, you could miss out on life-changing amounts of money.
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