Market Pulse with Dan Sheehan

Good morning investors,

Markets saw a sharp relief rally yesterday as President Trump’s announcement of a temporary one-month exemption on auto tariffs for Canada and Mexico gave traders a reason to bid stocks higher. However, beneath the surface, yesterday’s market action was more of a technical bounce from oversold levels rather than a true shift in sentiment.

Investors ignored two major headwinds: weak U.S. labor data and an alarming escalation in U.S.-China trade tensions.

The latest ADP employment report was a disaster, coming in at just 77,000 private sector jobs added in February, compared to expectations of 148,000. The data showed significant job losses in trade, transportation, and education, reinforcing the notion that businesses are starting to react to economic and policy uncertainty.

Meanwhile, China issued its strongest statement yet on the trade war, warning that it is “prepared for trade, tariff, or any other war the U.S. wants.” This should have been a major market-moving headline, but investors brushed it off in favor of focusing on the tariff exemption.

With weekly jobless claims out today and February’s nonfarm payroll report due tomorrow, the market faces a crucial test. If labor data continues to soften, it could force the Fed to accelerate rate cuts, but at the same time, tariffs could exacerbate inflationary pressures, putting the Fed in an impossible position—caught between rising unemployment and stubborn inflation.

The relief rally may not have staying power, and the next 24-48 hours will be crucial in determining whether this was just another dead-cat bounce or something more sustainable.

MARKETS UNDER PRESSURE AS INVESTORS WEIGH TRADE WAR, LABOR DATA

Stock futures fell Thursday morning, giving back part of Wednesday’s rally as traders reassessed the economic risks tied to ongoing trade disputes, weakening labor data, and persistent inflation.

• Dow Jones Industrial Average futures fell 378 points (-0.9%)
• S&P 500 futures lost 1.1%
• Nasdaq 100 futures dropped 1.3%

The optimism around Trump’s one-month tariff reprieve for automakers has already started to fade. The broader 25% tariffs on Canada, Mexico, and China remain in effect, and markets are beginning to question how effective these short-term exceptions will be.

Adding to investor anxiety, Marvell Technology’s earnings were a disappointment, with the stock plunging 16% premarket as the company’s AI-driven growth failed to meet expectations. This is a major warning sign that the AI-fueled market rally may be losing momentum, particularly as chip stocks have been the primary driver of market gains over the past year.

Meanwhile, bond markets continue to signal trouble, with global borrowing costs surging. German 10-year bond yields saw their largest one-day increase since 1990, and U.S. Treasury yields are rising as inflation concerns persist.

With the Fed’s Beige Book showing rising input costs due to tariffs, and the ISM manufacturing report indicating increased inflation pressures, the Fed’s next steps remain highly uncertain.

YESTERDAY'S DATA REVEALS GROWING ECONOMIC STRESS

Yesterday’s ADP employment report was the weakest in seven months, signaling a sharp slowdown in private-sector hiring.

• Only 77,000 jobs were added, far below the 148,000 expected
• Trade, transportation & utilities lost 33,000 jobs, a direct sign that businesses are bracing for tariff impacts
• Education & health services lost 28,000 jobs
• Information services lost 14,000 jobs

The one bright spot was in leisure & hospitality (+41,000 jobs) and professional services (+27,000 jobs), suggesting consumers are still spending on experiences, but other sectors are slowing.

At the same time, job losses were concentrated in small businesses, which lost 12,000 jobs, while large firms (500+ employees) added 37,000 jobs. This trend highlights the disproportionate impact of economic pressures on smaller enterprises, particularly as borrowing costs remain high.

Adding to concerns, wage growth remained elevated at 4.7% YoY, reinforcing the sticky inflation problem that the Fed has yet to resolve.

This data raises major red flags ahead of tomorrow’s nonfarm payrolls report, where markets expect 170,000 jobs added and a 4.0% unemployment rate. A weaker-than-expected print could trigger a sharp reaction across equities, bonds, and currencies.

TESLA STRUGGLES DESPITE BROADER MARKET REBOUND

Tesla bounced with the overall market yesterday, briefly reclaiming $280, but the stock has dropped back below $275 in premarket trading. Unlike other mega-cap tech names, Tesla struggled to hold gains, signaling that selling pressure remains strong.

This is concerning because if the broader tech sector sees a pullback, Tesla could see outsized downside.

Key technical levels to watch:

• If Tesla loses the $270-$275 range, a move down to $260 is likely
• Further downside could bring a retest of $250
• For bulls to regain control, Tesla needs to break back above $280, which could set the stage for a test of $300

With ongoing weakness in China’s EV market and continued margin pressures, Tesla remains one of the more vulnerable large-cap stocks in this environment.

BITCOIN: EYEING $73,000 AS CRYPTO SUMMIT LOOMS

Bitcoin remains volatile ahead of Trump’s White House "crypto summit" on Friday, which will bring together top industry leaders, including Coinbase CEO Brian Armstrong and MicroStrategy’s Michael Saylor.

The meeting is expected to discuss:

• Trump’s proposal to create a U.S. strategic cryptocurrency reserve
• Potential crypto regulations and tax policies
• The role of Bitcoin and digital assets in the broader U.S. economy

While the long-term outlook for Bitcoin remains bullish, traders should be cautious about a potential “buy the rumor, sell the news” event.

Bitcoin’s key levels:

• $73,000 remains the critical support zone (previous all-time high from 2021)
• If BTC holds this level, a move toward $100K+ is possible in the coming months
• If it breaks below $73,000, a deeper correction could occur before the next rally

With high volatility expected around Friday’s summit, traders should be prepared for sharp swings in price action.

FINAL THOUGHTS: A MARKET AT A CROSSROADS

Yesterday’s rally was built on weak foundations. The Trump auto tariff delay provided a short-term boost, but investors ignored growing economic concerns, labor market weakness, and escalating tensions with China.

With jobless claims today and the February jobs report tomorrow, we are entering a critical period for markets.

• If unemployment rises while inflation remains sticky, the Fed will be trapped between conflicting mandates
• This could move up the timeline for rate cuts, but could also fuel longer-term inflationary pressures
• The AI trade is beginning to show signs of exhaustion, with chip stocks under pressure after Marvell’s earnings miss
• Bond yields are rising globally, signaling increased borrowing costs and economic uncertainty

The market is at an inflection point, and the next 48 hours could determine whether we see further downside or a more sustainable rebound. Stay cautious and remain vigilant.

Dan Sheehan

[email protected]

Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Please consult your financial advisor before making investment decisions.