This past week delivered a jarring reality check for Wall Street. Stocks staged a sharp rebound—S&P 500 up 5.7%, Nasdaq 100 up 7.4%—but the gains masked deep instability. Treasury yields surged, equity flows were erratic, and Goldman Sachs warned that equities are no longer in the driver’s seat. The spark? Trump’s sweeping tariff plan and a chaotic 90-day pause that briefly ignited an historic tech-led rally before investor exhaustion set in. Just hours before the pause was announced, Trump posted “THIS IS A GREAT TIME TO BUY!!! DJT” on Truth Social.

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Hedge funds scrambled to unwind shorts midweek but resumed de-risking by Friday. Beneath the surface, liquidity collapsed to historic lows as volatility, not valuation, drove price discovery.

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Tariff Exemptions Signal Strategic Weakness, Not Relief

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While the White House pitched its updated tariff exemptions as a de-escalation, the reality tells a different story. Excluded items—smartphones, laptops, semiconductors—are precisely the products the U.S. cannot yet produce at scale. The decision shows a vulnerability in domestic supply chains. Beijing responded coolly, calling it a “small step” that does little to mend escalating tensions. Meanwhile, the exemptions appeared carefully calibrated to shield politically sensitive consumer goods ahead of the 2026 midterms. Tech stocks cheered the carveouts, but structural inflation risks remain, especially as the 145% effective tariff rate still applies broadly. Investors now face a bifurcated world: protected mega-cap tech versus inflation-exposed global manufacturers caught in the crossfire.

The New Market Engine: Political Shockwaves and Strategic Gaming

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Trump’s “buy” post on Truth Social and the subsequent tariff pause set off the biggest short-covering surge since 2015, pushing the S&P 500 up 9.5% in a single day. But the rally didn’t hold. By Thursday and Friday, asset managers began retreating—particularly from tech and banks—even after upbeat earnings from JPMorgan and Morgan Stanley. Hedge funds remained indecisive, flipping in and out of hedges without fully committing to long exposure in individual stocks. ETF trading surged to 40% of all equity volume, far above normal, while market depth in S&P futures hit historic lows, falling under $1 million. The message was clear: sentiment is fragile, liquidity is vanishing, and the real volatility isn’t just in the charts—it’s in the policymaking.

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