Creatix / July 27, 2025
Clients ask whether the market will close higher, flat, or down tomorrow. We don't know. No one knows because the future has not been created yet. Our "rational" guess is that it will close moderately below Friday's closing, with the S&P down about 0.25% for the day. But who said the market is rational? Anything can happen within these three simple scenarios: up, same, down (USD). Equities can go up, stay about the same, or go down. That's it. That's what's on the menu every single day here at Wall Street. The rest is icing on the cake to make our lives interesting.
Over the weekend, investors are cheering President Trump's "art of the deal", announcing a relief to the artificial tariff storm that he created. We are supposed to celebrate that we averted a feared tariff war with Europe by settling on a 15% blanket levy on EU goods. Stocks are supposed to climb as our Negotiator in Chief marks another win on the scorecard. The euro should continue rising against the dollar as part of the plan is to weaken the dollar. Financial pundits will give exhausted sighs of relief. The Tariff Boogeyman is under control. We won again.
But let’s think one level deeper for a second. Let’s ask the inconvenient question: What changed?
The Boogeyman Disappears, but the Market Remains Overbought
In theory, the market is supposed to behave like a cold, calculating machine. It processes information. It prices in risks. It reacts to new data. That’s the dogma of efficient markets, and the myth of rational actors responding to rational incentives.
But what happens when the Boogeyman is an urban legend? Or worse, what happens when tariffs are irrelevant because they were fake to begin with. Whether they raise or lower the tide, everything remains the same. Tariffs are the threat of making foreign goods more expensive to incentivize domestic production. Yet, they don't have the desired effect. Investors know that Trump will be gone (as in senile or dead) before reshoring of manufacturing to the United States has any meaningful economic impact. Building domestic manufacturing will take decades. Recouping the investment will take even longer. The new jobs, if any, will all be for automated machines (robots) and not humans. There's also the genetic fallacy problem. Even if tariffs are a good idea, they are by now, Trump's idea. This means that Trump opponents will oppose tariffs always. Tariffs are inconvenient. If there's a rule in economics is that convenience always wins.
The European tariff fears were just one brick in a wall of multiple macroeconomic stressors: ballooning U.S. debt, stickier-than-hoped inflation, slowing global growth, and corporate earnings increasingly fueled by cost-cutting (AI and automation) rather than innovation. And yet, investors tomorrow will act as if avoiding one specific downside risk justifies more upside. Guess what, many will buy it, especially retail investors. While hedge funds and smart institutions will take profit, we will fuel retail investors to keep making Wall Street great again.
That’s milking emotion. That’s building on momentum; striking while it's hot. We will be selling FOMO to the masses who will continue pushing equities up. Even the Tesla bubble will keep expanding on the hopes of Space X, Starlink, and the robotaxi, robocop, and more.
Rational Markets Would Take a Breather and a Break
If the market were truly rational, here’s what might have happened tomorrow:
-
Profit-taking: Traders would use the bounce as an opportunity to lock in gains from weeks of upward drift, knowing that relief from a fake Tariff Boogeyman is not the same as economic growth.
-
Valuation sanity: Investors would revisit the fact that the S&P 500 is trading at valuations higher than its 10-year average, with tech names priced for perfection amid uncertain rates.
-
Structural clarity: Analysts would realize that a 15% tariff still raises costs, still disrupts supply chains, and still chips away at global cooperation—all while providing no clear win for productivity.
In other words, a rational market would look at today’s news and say, “We dodged a bullet, but we’re still in a minefield.”
But Who Said the Market Is Rational?
The myth of the rational market is a seductive one. It tells us we’re not gambling. That we’re playing an elegant game governed by rules and probabilities. But the reality is messier.
Markets are driven by narratives, not numbers. By hope and panic, not just projections and spreadsheets. They are moved by algorithms chasing momentum, by traders trying to outguess each other’s reactions, and by retail investors scrolling headlines on their phones during lunch breaks.
Today’s rally is not about fundamentals. It’s about feelings. Relief. Celebration. Denial. It’s not about earnings per share or GDP growth. It’s about the end of an anxiety cycle, not the start of a rational one.
So What Comes Next?
If the past is any guide, we’re due for a reminder. Everything will continue going up until we collectively find a reason (or an excuse) for a sharp correction. That could be a negative earnings surprise, a central bank slip-up, or a decline in the president's health. It will be a reminder that markets are not immune to gravity. Relief rallies often precede reality checks. And this one may be no different.
But until then, the irrational exuberance should march on as fools keep rushing in and we keep cashing in and also out. After all, no one ever said the market is rational. No one here believes it is; we're just enjoying the party, staying sober and spotting the exit doors.
Filed under: Markets, Trade, Irrational Behavior, Financial Psychology
📉 Market Reaction & Expert Commentary
1. Relief Rally & Market Stability
-
Analysts and strategists generally view the deal—which sets a 15% U.S. tariff on most EU goods—as a better alternative to the previously threatened 30% tariffs, helping to avoid a transatlantic trade war. This has lifted market sentiment, especially in equities.(Reuters)
-
Quotes like "the crippling uncertainty is largely over" indicate a profound sense of relief that major escalation has been avoided.(Investing.com)
2. Modest Upside, Not a Surge
-
Experts suggest the market had already priced in most of the positive expectations, so the reaction is modestly positive, not explosive.(Investing.com)
-
U.S. stock futures posted modest gains following the announcement, though the rally is tempered by concerns on protectionism and inflation risks.(Reuters)
3. Currency Shifts
-
The euro rose about 0.3% against the dollar, as the deal eased fears of escalating U.S.–EU friction.(Reuters)
4. Long-Term Risks Highlighted
-
Several analysts caution that while the agreement reduces immediate uncertainty, it still reflects asymmetrical benefits favoring the U.S., raising questions about inflation, reduced growth in Europe, and the sustainability of using tariffs as leverage.(Reuters)
🧠What Key Analysts Are Saying
-
Holger Schmieding (Berenberg Bank) stated:
"The deal is bearable for the EU… modestly good news for equity markets, that probably priced in most of it beforehand."(Investing.com) -
Other economists have echoed the sentiment: it's a relief compared to 30% tariff threats, but with limited upside since much was already anticipated.(Reuters)
📊 Summary Table: Market Reaction at a Glance
| Area | Reaction Today |
|---|---|
| U.S. Equities | Modest gains; rally driven partly by relief |
| European Markets | Slight uptick in sentiment; cautious optimism |
| Currency (EUR/USD) | Euro up ~0.3% |
| Corporate Sentiment | Business relief over trade predictability |
| Analyst View | Relief—not euphoria; many benefits already priced in |
| Key Risks | Protectionism, inflation, future retaliation |
🚨 Bottom Line
Markets welcomed the deal as a stabilizing moment, particularly by eliminating the threat of a full-blown trade war. That said, the impact is viewed as muted, with much of the optimism already priced in. Longer-term concerns—such as protectionist spillover and inflationary pressure—continue to temper enthusiasm.
Comments
Post a Comment