The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Return of the tariff.
Last night, Amazon’s results beat but their guidance disappointed. S&P futures traded flat overnight. Nonfarm payrolls (+143k vs +175k est & +307k prior revised from +256k) didn’t move markets. Unemployment remained low (4%) and other labor metrics look good. The S&P opened flat and rallied about 15 points in the first thirty minutes. At 10 AM, U Michigan survey data hit the market bearishly. Specifically, 1-year inflation expectations climbed to 4.3% from 3.3%. That’s a lot. 5-10 year inflation expectations ticked up as well, 3.3% from 3.2%. The S&P fell 25 points immediately and drifted lower from there. Trump tariff rumors hit the tape before lunch and the market belonged to the bears once the story was confirmed. The details are still pending but Trump is going to announce *something* on Monday or Tuesday. Yields climbed across the curve and the market is unsure what to project as far as Fed policy goes.
The market is trying to figure out how to deal with the tariff talk. Even if one believes that that tariff talk is intended to only be talk, at some point tariffs are going to happen. The threat of tariffs may prompt some countries to acquiesce to the will of the President but some countries, won’t roll over. There are going to be fights…and there are going to be economic consequences. The question is no longer if. The question is how big.
Markets are just beginning to factor in the negatives. I don’t know whether Trump’s reveal next week will send investors into further risk-off mode or entice them back to risk-on. We shall have to wait and see.
I think it would be naïve for investors to think that whatever does happen in the future w/r/t tariffs will negligible.
I think it’s much more likely that GDP is materially harmed and inflationary forces are buoyed.
How much of that can we tolerate?
I don’t think we’re currently priced to tolerate any, which makes me think that the risk outweighs the reward for a long time coming.
See you Monday, have a great weekend.
-Mike
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