Christopher Harvey from Wells Fargo Securities expresses long-term optimism for equities, despite warning about risks from the upcoming April 2 tariff announcement.
He mentions potential monetary stimulus, expected tax bill developments, and the current oversold status of certain major companies as factors contributing to this outlook.
Risks Despite Positive Indicators
However, he also acknowledges that the risks are substantial, including the possibility of a recession due to aggressive tariff actions.
The anticipated announcement is scheduled for 4 pm US Eastern time, with indications that quick negotiations may not align with European preferences.
What’s laid out in the existing content is a classic case of weighing the upside against real threats. Harvey’s remarks reflect what we’ve also noticed—there are enough longer-term positives to keep bullish sentiment alive, but they don’t cancel out shorter-term pitfalls. His optimism stems from a mix of factors we’ve tracked ourselves: the hint of upcoming stimulus by monetary authorities, the prospect of movement on fiscal changes, and some assets currently trading well below recent norms. These offer the type of relief that bulls are always searching for, especially when certain valuations appear stretched in the downward direction more than fundamentally justified.
Still, the looming tariff reveal scheduled just before US markets close does not give much time for market participants to digest the outcome. Pricing in last-minute trade decisions is something we’ve all had to do before, particularly with geopolitical noise showing up without warning. But what heightens the risk this time is the suggestion that those behind the announcement might not be looking to immediately engage in discussions with European counterparts. This could fan volatility beyond what’s currently being factored in.
Broader Market Vulnerabilities
From where we sit, there’s also the ongoing concern that trade friction won’t only hit sectors directly tied to exports. Markets tend to react not only to specific impacts but also to the perceived direction of macro policy. In past cycles, abrupt trade shifts have pulled sentiment sharply lower across asset classes—we think that possibility remains.
Of course, there are spots in the current derivatives pricing where optimism appears baked in. Some short-dated volatility contracts, in both equity and FX, seem underestimative of the scope of potential market reaction. Calendar spreads are telling us that traders expect the month to start with a kick but normalise shortly after—something we would not rely on, given the policy uncertainty.
Much of the market has also not rebalanced from last month’s rotation, making it more sensitive to external shocks. There’s a sense that positioning remains lopsided in some indices, with limited options hedging observed on both institutional and non-institutional sides. This leaves us open to sharper adjustments should the announcement come in heavier than anticipated.
As participants in this space, we’ve learned that caution tends to outperform boldness when announcements hinge on geopolitical motivations. So, in the coming sessions, aligning exposures tighter to real data—as it comes—might help mitigate whiplash. We’d view any strong moves after the announcement as potentially exaggerated and not necessarily reflective of new macro consensus.
Spreads in credit-linked derivatives are another place we’re watching closely. If spreads begin to widen disproportionately post-announcement, that’s usually a warning sign that recession fears are being repriced again. That hasn’t happened yet, but illiquidity in key sectors could make that shift quicker than models currently expect.
We’ll be maintaining a tighter view on rate curve changes, too. Any reaction by central banks—not just one, but particularly in response to global trade uncertainty—tends to push short-tenor contracts first. And those moves often have a large multiplier effect through broader pricing systems.
To us, it’s less about whether there will be volatility and more about how sustained it could be. Direction matters, of course, but consistency in the direction matters even more when planning hedged positions. A skewed event like this one rarely moves without pulling in trailing technical signals, and we believe those watching purely through sentiment-driven tools risk being late.
