Are we in a Bull Trap or a New Unprecedented Cyclical Rally?

Many seasoned investors are scratching their heads in some confusion.

In the past week, President Trump has renewed his tariff war threats on allies. Yet, unlike the jarring financial reaction recorded in April, stock markets around the world kept their near-vertical ascent.

In the last few sessions, amidst the summer heat the UK FTSE 100 Index jumped to record highs. Joining the bull run into fresh levels were the German DAX 40, Singaporean Strait-Times Index, tech-heavy Nasdaq 100, and blue-chip S&P 500 Index. A few other equity indices also hit new long-term highs, including the Italian FTSEMIB Index and Korean KOSPI Index.  The former sits at 18-year highs; while the latter has delivered positive returns in five of the last six weeks, thus matching the sharp gains delivered back in 2020 (see below).

In sum, global equities are partying like it’s 2021 (or 1999) again!

No wonder the US administration is fearless these days. Trump briskly announced 30 percent tariff rates on Mexico and EU by August 1. Rather than dipping on these tariff threats, the equity market has delivered its near-unanimous verdict: All fine and good.

What veteran investors are confused about is why the market is so confident. For instance, James Dimon of JP Morgan warned that ‘there is complacency in markets’. The elevated price levels suggest that a) these higher reciprocal tariffs will go away, or b) there will be no downside effects on corporate earnings. These tariffs will not deliver bad (or really bad) financial outcome.

Market fear, as denoted by the VIX index, is only trading at 16 (see below, Weekly Candlestick). The index surged to 60 during the second week of April, but retreated immediately after the announcement of the 90-day tariff pause.

One reason for this positive mentality is perhaps TACO. Investors are expecting another multi-week pause to the higher reciprocal tariffs at the last minute. For example, the White House has delayed the tariff deadline from July 9 to August 1. Another rollback will give corporations and governments more time to ‘negotiate’ the tariffs. Of course, many are saying that another extension is by no means guaranteed to happen. ‘No More TACO’ this time is what some White House insiders are saying.

Another reason is that these tariffs may not harm the real economy as much as feared.

For example, tariff-related revenue soared unexpectedly to $100 billion (net of refunds). Scott Bessent, current US Treasury Secretary, announced proudly on X (formerly Twitter) that: “As President Trump works hard to take back our nation’s economic sovereignty, today’s Monthly Treasury Statement is demonstrating record customs duties – and with no inflation!” 

With tariff rates anticipated to rise further later this year, tariff revenue is projected to double that of the previous fiscal year (US fiscal year ends September). This will prove a good source of additional funds for the administration. Meanwhile, inflation rate (CPI) for June is expected to stay around 3.0 percent. Viewed another way, the turbulent economic phase that investors feared in April and May did not materialise. Hence the new market highs in global stock market indices.

Source: Reuters 

Bitcoin & Silver Break Out!

How to square the fact between the brewing tariffs deadlines and jubilant stock prices? Eventually, only one economic outcome will prevail. But which one? Investors are definitely pinning their hopes on economic smooth sailing.  Money is therefore piling into the risky assets like stocks, crypto and commodities.

Look at Bitcoin’s recent price action. A massive breakout through the summer resistance at $110K. This emphatically renews the bull run from 2022. Despite having risen 8x to $2.5 trillion in market cap (coinmarketcap.com), Bitcoin’s rally is still intact and is dragging the entire crypto sector higher.

One of Bitcoin’s bullish drivers is the impending new US legislation on digital assets. Dubbed the ‘Crypto Week’, the American Congress this week is about to analyse and debate the new Digital Asset Market Clarity Act of 2025 (see legislative text here). This Act will govern a swathe of the digital landscape, from regulation of the sector to payment to stablecoins. A positive development for the entire industry.

Silver also broke out. The metal has been lagging gold for quite some time and is now playing catch up. When it does, the metal produces an astonishing rally (eg in the first half of 2011). Other metals like Platinum and Palladium also affirmed their medium-term uptrends. It seems the entire commodity metal sector is surging following the dip in US dollar earlier this year.

Silver miners such as Fresnillo (LON:FRES) surged along with silver prices. It trades at multi-year highs at around £15.

Should we be buying the Dip?

What a difference a quarter can make! In April, most assets are down because of the unexpected new US tariff regime Now, it seems many assets are up sharply despite the tariff threats. The bulls are shrugging off the negative factors. In proverbial speak, markets are climbing a ‘wall of worry’.

The question is: Are investors overly complacent, as observed by Mr Dimon? The stock market is seemingly pricing for perfection. That tariffs will eventually not harm the economy; that global growth will remain steady; and that corporate earnings will continue to support stock prices.

If we look at price action alone, yes, we should continue to tilt our portfolio into risky assets. ‘Buy the dip’ is the undisputed strategy of the day. But given the overbought technicals, stretched rallies, and still-elevated US interest rates, modest protective measures could be taken to cushion some downside risks, measures like trailing stops. Who knows, a few ‘Black Swan’ events could emerge from nowhere (and always unexpected!) during the summer and shatter this complacency overnight. Some cash would come in handy to take advantage of a dip.