Markets kicked off the week with a sharp downturn, driven by mounting trade policy tensions and renewed concerns over economic stability. Investor attention quickly turned to shifting asset prices, developments in U.S. tariff strategies, and early signals from Q1 earnings reports.

Dollar Weakness and Treasury Yield Rebound

The U.S. Dollar Index continued to decline, particularly after the Asian markets opened on Sunday. Historically, a weaker dollar can be a strategic tool to boost U.S. exports by making American goods more competitive. This echoes a similar pattern from Trump’s first term, where the dollar weakened significantly post-election. So far in 2025, the dollar index has dropped nearly 10% year-to-date, including a notable 1% dip on Monday alone.

At the same time, long-term Treasury yields surged. The 10-year yield climbed 9 basis points, while long-dated bonds such as TLT dropped by 1.7%. This rise in yields is problematic for policymakers who favor a weak dollar but prefer low borrowing costs. Elevated yields could signal market stress or reduced confidence in U.S. fiscal policy.

Equity Market Broad Sell-Off

All major U.S. indices fell significantly on Monday, with the sell-off intensifying after 3 p.m. Every sector declined, most by more than 2%. The Russell 2000 dropped 2.1% and is down 17.5% YTD, while the Nasdaq has lost 17.8% so far this year. Notably, gold rebounded 2.9% and Bitcoin rose 2.6%, signaling a shift in investor sentiment toward alternative assets.

Bitcoin, in particular, showed relative strength, which may suggest growing institutional interest. Despite its risk-on nature, its resilience during equity downturns is attracting attention from investors reconsidering its role in diversified portfolios.

Trump’s Trade Policy: Market Implications

A recent Fox News report offered insights into Trump’s ongoing trade stance. Some believe Trump genuinely aims to reshape what he sees as an imbalanced global trade system—even at the cost of short-term financial turbulence. This includes speculation that he may pressure the Fed to cut rates or even replace Jerome Powell, creating further uncertainty for markets.

Trump’s approach could result in controlled economic pain to push forward his broader trade agenda. While markets dislike uncertainty, the administration may be willing to tolerate limited downside as a means to realign trade relationships, especially with China.

U.S.-China Tariff Expectations

Despite rising rhetoric, the actual implementation of severe tariffs is not guaranteed. Recent feedback from major U.S. retailers like Walmart and Target suggests there is active lobbying against extreme measures. Many expect final tariffs to range between 10% and 35% rather than reaching punitive levels. Trump himself has signaled he may reduce some tariffs, acknowledging that excessive duties could hurt consumer spending.

Q1 Earnings: A Mixed Bag So Far

Netflix beat EPS estimates by more than 10% but chose not to raise full-year guidance, citing higher expected expenses in H2. So far, only 12% of S&P 500 companies have reported, with many “beating expectations” seeing their stock prices decline—a possible case of “sell the news” behavior.

At the macro level, the absence of warnings from companies like Netflix suggests consumer demand remains resilient for now. However, EPS growth expectations for 2025 have been revised downward from 15% at the start of the year.

Valuation Metrics Worsening

Forward P/E ratios have dropped below their 10-year average during recent corrections, showing that valuations have compressed significantly. Though markets have rebounded somewhat, multiples remain in a fragile range between their 5- and 10-year averages.

Conclusion

The current environment is marked by high uncertainty, driven by erratic trade policy, shifting investor sentiment, and earnings reports that fail to excite. For investors, this is a time to observe fundamentals closely, stay diversified, and avoid speculative bets on macro outcomes like tariffs. As earnings season continues, market direction will depend heavily on both company performance and political headlines.