The market needs the answer to this question: What are tariffs for?

The Nasdaq opened at the best levels since Liberation Day today but that’s been followed by a decent reversal with the index now down 1.0%.

The question for investors right now is whether it’s best to bail after a return to pre-tariff levels or whether a new bull market has started?

I don’t think the bulls can maintain the upper hand until we get an answer to this question: What are the tariffs for?

1. To raise US government revenue
2. To re-write trade deals and open markets to US exporters

The latter case is the one you hope for as it would ultimately result in a world with lower tariffs and that would benefit US corporations, particularly the large multinationals that dominate the index.

But if the goal is to raise revenue, then it argues that tariffs are permanent and in that case, we will end up in a place where other countries raise tariffs in retaliation or at the very least, there is less policy certainty.

On the weekend, Trump again pointed to the revenue side.

That’s worrisome but the real answer will come when we finally get a fresh US trade deal, something Bessent said could happen in the next week or two.

If that results in lowering tariffs on both sides, and the US drops its own tariffs down to 0% (rather than a 10% floor), I think the bull market continues. But if we get a 10% floor, I just can’t see the US making many deals.

This article was written by Adam Button at www.forexlive.com.