Markets
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Luke Kawa

Wall Street’s new strategy: Hope that these tariffs aren’t real

The scale of the trade barriers announced by President Donald Trump on Wednesday means that any bull calls you see out of Wall Street today will have one tenet at their core: take Trump’s reciprocal tariffs seriously, but not literally.

Here’s Wedbush tech analyst Dan Ives:

“Over the coming 24 hours the world will quickly realize these tariff rates will never stay as they are shown otherwise it would be a self-inflicted Economic Armageddon that Trump would send the US and world through over the coming year. We have to assume this is the start of a negotiation and these rates will not hold... stocks will sell-off massively but ultimately our view is these numbers would throw the US into a clear recession and cause stagflation almost immediately... IF they hold (and they will not for long, in our view).

For today with clients... we are taking the approach after speaking with business leaders/supply chain experts from around the world last night that these tariffs (and the fascinating calculations which need to be explained by someone from the White House today) are the start of negotiations with countries and even individual companies to even the playing field. If you start with that assumption then the massive sell-off today (and potentially over the coming days) is a major buying opportunity to own the best tech winners on sale for a policy that will be temporary and not permanent.”

Ives adds that “our focus to own this morning” is Wedbush’s tech winners basket, which includes Nvidia, Microsoft, Amazon, Apple, Tesla, Palantir, Alphabet, Palo Alto Networks, CyberArk, and Check Point Software.

We’ve been pretty vocal about the idea that the proximate cause of the stock market’s retreat from all-time highs has been more a momentum unwind than a pricing in of the economic downside risks that loom following the imposition of tariffs. That’s in part because investors with some memory of Trump 1.0 policy sequencing, as well as the stock market serving as a “report card” for that administration, had cause to shrug off fiery trade rhetoric as cases of the president’s bark being worse than his bite.

Trump Hot Air Cycle
Source: Sherwood News

When we first wrote about the “Trump Hot Air Cycle,” we noted that this method of thinking conditions investors to react late to negative catalysts — that this is a miniature version of Hyman Minsky’s “stability breeds instability” argument.

“What’s needed to break this cycle? Well, action that everyone was warned about but no one thought was coming, probably,” was the thought. Action that everybody was warned about but no one thought was coming sounds an awful lot like a scheduled “Liberation Day” Rose Garden address. And based on the reaction we’re seeing today in markets — which comes amid a continued reluctance to countenance the outcome of these measures as a new, enduring reality — yes, this has the potential to be a paradigm-shattering event.

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Max Knoblauch

Carvana plunges as investors respond to another subprime lender’s bankruptcy filing

Used car retailer Carvana is plunging on Wednesday, with the stock on pace for its worst day since auto tariffs took effect in April.

Likely spooking investors is a fresh bankruptcy filing by PrimaLend, which specializes in financing for dealerships focused on subprime borrowers (customers with lower credit scores, typically below 600, as defined by Experian). The news follows last month’s bankruptcy filing by another subprime auto lender, Tricolor Holdings.

Carvana doesn’t appear to work directly with PrimaLend, but it does likely have significant exposure to subprime loans. According to a January report by Hindenburg Research, which was shorting Carvana, 44% of the loans Carvana packages into asset-backed securities (ABS) are classified as non-prime (601-660 credit scores). More than 80% of its recent non-prime ABS deals had average FICO scores in the “deep subprime” range, or the riskiest levels, according to the report. Carvana at the time called the report "intentionally misleading and inaccurate.”

Carvana has massive growth goals, saying earlier this year that it aims to sell 3 million retail units per year within 5 to 10 years (Wall Street expects it to sell about 580,000 units this year). Lower-income buyers could be a significant part of that growth.

Following Tricolor’s implosion last month, JPMorgan CEO Jamie Dimon said: “When you see one cockroach, there are probably more. Everyone should be forewarned on this one.” With investors pouring out of Carvana on Tuesday, it seems Wall Street isn’t taking that warning lightly.

There is likely also some momentum pullback baked into Carvana’s drop: The stock, which has been a favorite among retail traders, is still up 58% this year, even after Wednesday’s drop.

markets
Luke Kawa

Beyond Meat halted for downside volatility after daily gain of more than 100% disappears

When the broad market turned shortly after 10 a.m. ET, the meme stocks were not immune from the carnage for long.

Beyond Meat, which was up 112% at its peak during regular trading hours on Wednesday amid another day of insanely high volumes and call activity, was halted for downside volatility after briefly erasing all of those gains.

As of 11:49 a.m. ET, the retail trader who posted their “YOLO” buy of 10,000 shares at a price of $7.50 on r/WallStreetBets is now down more than 40% (or $30,000) on the day.

markets
Luke Kawa

The momentum unwind accelerates in megacaps, with MTUM on its longest streak of underperformance since 2023

First, high-flying speculative stocks took a nosedive. Then gold lost some of its shine. Now, the megacap components of the momentum trade are also looking wobbly.

The iShares MSCI USA Momentum Factor ETF, which holds stocks with the best risk-adjusted price performance over the past six months and one year, is trailing the SPDR S&P 500 ETF by more than 1 percentage point today through 11:27 a.m. ET.

As of 11:23 a.m. ET, more than one-fifth of its 125 members are down more than 2%, headlined by big tumbles in Netflix, Carvana, GE Vernova, Rocket Lab, Quanta Services, and Robinhood Markets.

(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions.)

The momentum ETF is in the midst of its seventh straight session of lagging the SPDR S&P 500 ETF, its longest such streak of underperformance since Q4 2023.

The negative reactions to GE Vernova and Netflix’s earnings reports — both MTUM constituents — may be the catalyst for the big retrenchment in the space, the same way Walmart’s disappointing outlook sank the group (and the overall market) in the first quarter.

markets
Matt Phillips

Oklo, nuke stocks battered amid speculative stock and momentum unwind

Amid a broader unwind of momentum trades, stocks tied to the nuclear-powered AI trade — Oklo, Nano Nuclear, and Centrus Energy among them — are taking a particularly hard beating.

JPMorgan strategist Arun Jain estimates that retail traders have dumped $24 million in Oklo shares through 11 a.m. ET.

This tumble comes alongside a tough-minded story from the Financial Times examining the prospects of this zero-revenue company, which as of yesterday had a market value of $20.6 billion. (It’s below $18 billion after today’s drop.)

Of Oklo’s plans to build smaller nuclear reactors using liquid sodium as a coolant rather than water, the salmon-toned periodical wrote:

“Some experts point to the failure of sodium-cooled reactors built in the US between 1950 and 1976.

Critics also note proliferation risks because Oklo’s plans would see plutonium move into private industry hands, where it could be at risk of diversion or theft by those who seek to build an atomic bomb. A decision by the US Nuclear Regulatory Commission to reject a previous Oklo application to build a sodium-cooled reactor in 2022 has also raised questions.

‘That NRC deemed Oklo beyond help should be a red flag,’ said Allison Macfarlane, a geologist and former chair at the regulator now at the University of British Columbia.

‘Liquid sodium is highly corrosive, flammable and explosive on contact with air and water,’ she said. ‘Many countries have tried to build these reactors before but they haven’t managed to prove they are commercially viable at scale.’”

“Some experts point to the failure of sodium-cooled reactors built in the US between 1950 and 1976.

Critics also note proliferation risks because Oklo’s plans would see plutonium move into private industry hands, where it could be at risk of diversion or theft by those who seek to build an atomic bomb. A decision by the US Nuclear Regulatory Commission to reject a previous Oklo application to build a sodium-cooled reactor in 2022 has also raised questions.

‘That NRC deemed Oklo beyond help should be a red flag,’ said Allison Macfarlane, a geologist and former chair at the regulator now at the University of British Columbia.

‘Liquid sodium is highly corrosive, flammable and explosive on contact with air and water,’ she said. ‘Many countries have tried to build these reactors before but they haven’t managed to prove they are commercially viable at scale.’”

markets
Luke Kawa

Retail traders hit the sell button on quantum computing stocks

In a parallel universe, retail traders are doubling down on the long-term potential of quantum computing companies. But in this one, they’re very much heading for the exits after these companies, which are in the early stages of commercialization, have enjoyed a monster run that’s beginning to sour.

JPMorgan strategist Arun Jain estimates that retail traders are net sellers of single stocks today to the tune of $336 million, as of 11 a.m. ET. And quantum stocks Rigetti Computing and D-Wave Quantum are among the names seeing the biggest outflows, with $26 million and $20 million in net sales, respectively.

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