Death cross, trade wars, and Taiwan

On April 14, 2025, a significant technical milestone occurred in the S&P 500 Index: the 50-day moving average crossed below the 200-day moving average, triggering what is known as a "Death Cross." Traditionally viewed as a bearish indicator, the Death Cross suggests a potential shift in medium-term market momentum to the downside.

Yet, paradoxically, markets have rallied strongly since the cross occurred. The S&P 500 rose 3.8% for the week, the Nasdaq Composite jumped 5.4%, and the Russell 2000 climbed 4.1%. This counter-intuitive market response invites a deeper look, not just at chart patterns, but at the broader geopolitical and policy context.

Enter Donald Trump, now in his second term as U.S. President. During his first term, Trump often leveraged bullish technical events, especially Golden Crosses, as proof of economic strength under his administration. When faced with bearish signals like the Death Cross, he typically dismissed them as technical noise or media-driven fear. It is worth observing how this pattern might repeat in 2025.

Compounding the intrigue is a sequence of coordinated U.S. policy actions:

·       The Carrot: On April 22, 2025, U.S. Treasury Secretary Scott Bessent called the current trade war with China "unsustainable" during a speech in Washington, signaling potential openness to tariff relief. Simultaneously, China began exempting certain U.S. goods like semiconductors and pharmaceuticals, from retaliatory tariffs.

·       The Stick: On April 23, 2025, the U.S. Navy sent the USS William P. Lawrence through the Taiwan Strait, a move China criticized as provocative. This came amid heightened U.S.-China tensions.

The implicit message appears clear: the United States is prepared to offer economic incentives in exchange for Chinese restraint in the Taiwan Strait. This form of carrot-and-stick diplomacy aligns well with the Trump administration's characteristic negotiation style. In short, while the market has technically entered a bearish phase with the Death Cross, traders seem more focused on earnings surprises, softening inflation data, and geopolitical positioning than on moving averages. Whether the current rally proves to be a classic "post-Death Cross trap" or the start of a new bullish cycle remains to be seen. But one thing is certain: in the Trump era, market optics and political messaging are never far apart.