Mutilation Day

Hold Onto Your Butts

Author

Michael Batnick
April 03, 2025

“Hard to believe this was less than three months ago.”

That’s Logan Bartlett, who shared a quote from the consensus GOAT trader/investor of all time, Stanley Druckenmiller.

I’ve never seen an about-face in investor confidence this quickly in my life.

“In the Rose Garden at the White House President Trump laid out a jaw dropping reciprocal tariff chart that will be showed in classrooms and be written about for years to come by eccnomists…because they are so illogical and absurd.”

That was Dan Ives commenting on the clown show we all witnessed yesterday.

Here's the story behind the illogical and absurd numbers that Dan referenced. The White House “calculated” the tariffs other countries put on us, and because he is very kind (seriously, he said this), we will reciprocate, but only by half. The thing is, the numbers are made up. Literally.

James Surowieckie tweeted:

Just figured out where these fake tariff rates come from. They didn't actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country's exports to us.

So we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us. What extraordinary nonsense this is.

This morning, there are all sorts of estimates about how devastating these policies would be if they go through. I’ve seen, so far, a range of estimates calling for S&P 500 earnings to contract between 5% and 8%. Wall Street might actually take it better than Main Street. Look at GDP now, from the Atlanta Fed, which has been cascading lower. I’m sure the next reading will be even worse. (Advisors, check us out)

These policies would be devastating to the global economy. Just look at the share of Nike’s manufacturing by country. The stock is getting nuked, falling 15% pre-market.

It’s going to be a disgusting day on Wall Street. One that you’ll remember for the rest of your life.

The S&P 500 is set to gap down 3%, placing it alongside some of the worst market environments of the modern era: 1987, 2001, 2008, 2011, 2015, and 2020.

3% feels light, honestly. I’m thinking, and there’s really no way to measure this, that the proposals yesterday are so far over the top, that investors aren’t taking it literally. It’s so crazy that it just can’t be real. It has to be a negotiating tactic.

Boy, I sure hope so. Because otherwise, the damage will be severe.

But even if they were to negotiate, would it be too little too late? These policies are causing extreme uncertainty and are ravaging confidence. Confidence is the key word here. It’s the most important thing to investors. Without it, everything breaks down. That feeling is hard to quantify, but I’m pretty sure 20x forward earnings ain’t it.

And I’ve got some bad news for you there. The consensus earnings are at all-time highs. We’re about to see some sharp revisions lower. I’m making this up, but let’s say we’re looking at $260 instead of $279, and 16x instead of 20x, then that takes us to 4160 for the index, 27% lower than where we are today.

Alright, breathe. Calm down.

A lot of damage has already been done. Every Mag 7 stock will be in a 20% drawdown at the open. Amazon, Meta, and Google are all down 25% from their highs. Nvidia is set to open 30% below its high.

At some point, and I have no idea when, the market will present itself with phenomenal buying opportunities. Now is not the time to panic. Now is the time to start making a game plan about how you will add to an asset class that has been demonstrated to be the best wealth creation machine in the universe. Through all of the ups and downs over the decades, over the long run, stocks are the best game in town.

I’ve always said that the best way to discover your risk tolerance is to go a little bit past it. That feeling is something you can’t simulate. So, if your portfolio makes you feel like you want to puke, you’re clearly over the line, Smokey. Most (all) of us don’t have Charlie Munger’s temperament, who said:

“You better be able to handle a 50% decline without fussing too much about it.”

We know that stocks have the potential to get cut in half. It’s happened before; it’s surely to happen again. But that’s the price of admission. The reward can’t be severed from the risk. And earning that reward requires a strong stomach.

We’re in the storm now. It looks like it’s going to intensify before it weakens. The sun will shine through eventually. Make sure you’re there for it.