Is the market rally sustainable?

With the recent news regarding a potential de-escalation, we're seeing a relief rally. Whether or not this rally is sustainable depends on how soon the de-escalation happens and the economic data going forward. However, there is some mixed messaging: 1) the 145% hasn't gone down yet 2) one side is saying there has been trade talks while the other side denies it. Also what happens after the 90-day pause? The current earning season may be "untainted" by tariffs, so results could be decent/good. But going forward, not so much. So there is still a lot of uncertainty. 

There are a few ways this could play out: 1) both sides de-escalate on their own without any talks, for example, by granting exemptions or simply reducing tariff level. 2) one side reaches out to the other to kickstart negotiations 3) no or little de-escalation. 4) Escalation before de-escalation again.  Scenario 1 may be likely since it is already happening.  Scenario 2 seems unlikely since one side promises to "fight til the end" and demands mutual respect and removal of tariffs, and so why would they negotiate when the other side is de-escalating on its own? Scenario 3 is the least unlikely since it is unsustainable in the long-term. Scenario 4 could be possible. Therefore I think there is a high chance of de-escalation. But to what extent will it de-escalate and how will it impact the economic data? There might still be some level of tariffs on the major economies even after negotiations or de-escalation, and that would weigh on the economy. Since there are too many variables and moving parts, I can imagine it is very difficult for experts to provide accurate forecasts. Hence there will be much uncertainty and possible volatility when the actual data is released in the future, especially when the actual data mismatch the forecasts. 

So far, my nibbling has been profitable. While I don't think the rally will go all the way back to all-time high, I think the market has bottomed out since both sides are trying to avoid negative outcomes.  Any big dip could be worth accumulating. I have been doing hedging using volatility ETFs which I prefer for various reasons that I may reveal over my next few posts.  

Is it safe to buy stocks yet?

It's been a long while since I updated. As shared previously, I am mostly in cash as I have foreseen some turmoil at the beginning of the year. When the major US retailers have started sounding off the alarm in Feb/Mar regarding weaker consumer spending, I sold off most of my holdings. Since then there has been a lot of volatility. I have been trading hedges and volatility ETFs. The sentiment is still very weak with a lot of uncertainty. The 2 largest economies have not yet started negotiation. The tariffs are forecasted to hurt the economy especially with small and medium businesses taking big hits. Inflation will return and growth will slow. There is already some evidence that the stance may be softening, judging by the exemption of electronics and semi, and call for rate cuts presumably to cushion the inflation impact. Afterall, with domestic pressure, and rising unfavorable polls, I don't think the tariffs can continue for too long. In fact, the man himself said there could be a deal with China within 4 weeks, somewhat implying that the whole thing should come to an end or de-escalate soon.  I am doubtful a deal could happen so soon though, if at all, since the 2 leaders are not even talking directly yet. Even if there is a deal, it might be one that is not so favorable, and there would still be some level of tariffs. I don't think all the tariffs will be removed. Further, there might be more coming soon, semi/pharma/minerals tariffs. 

The 2 main uncertainties are how high would inflation go, and how low will economic growth go? Recently, all forecasts have been not very accurate. Going forward, the forecasts will be even more inaccurate given the chaotic situation right now. Any misexpectation will cause shocks to the stocks.

It is really hard to say whether the bottom is in, especially given that there is no Fed 'put'. Will the markets drop further before recovering or just go up from here? Therefore, it might be wiser to just DCA slowly for those long-term investors, and hold really strong stocks that can weather any storms. For me, I will just continue to nibble very slowly while trading hedges.