The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Legal tangles.
Nvidia did what everyone expected and S&P futures climbed about 20 points in response. The US Court of International Trade in New York ruled that Trump’s reciprocal tariffs were beyond the President’s authority and that the tariffs were to be vacated. Futures lept higher 80-90 points as markets envisioned a tariff-free world. Confusion about what Trump might do instead took hold and bullishness slowly ebbed in the early hours of the premarket. The S&P opened about +50 points but leaked value further over the day, with the index dipping negative by lunch. Other legal outcomes that happened during the day further confused the market. A federal appeals court paused the vacating of the tariffs and then a different US District Judge ruled that a number of tariffs were unlawful. If you’re confused, you’re not alone. The market is looking at the conflicts within the courts and standing pat. In the meantime, yields fell a little and Fed cuts for the year are priced at 50 bips.
The tariff situation just became even more complicated. If the courts follow-through on what appears to be overreach by the President, the last two months of concern go away. Tariffs, as they’ve been currently constructed by the President, are not going to grind the global economy into recession.
However, what is Trump’s Plan B in that scenario? He is not going to sit on his hands. He’s going to come up with some new twist on smacking our trading partners to get whatever it is that he’s looking to get. Perhaps his Plan B will not only be withing his powers as President, but perhaps it will be quite bearish if the affected countries don’t acquiesce quickly?
That is the situation the market finds itself currently. The Devil we know appears to be off the table, over time, thanks to the courts. But what of the Devil we don’t know?
Investors are grappling with that consideration and haven’t decided if Plan B will be bad or not. Right now, it’s a status quo conclusion. It *certainly* isn’t bullish. If it were, if Plan B will have no teeth, we’d already be trucking towards new highs. That’s not the situation. The new uncertainty of the situation is being digested neutrally.
I wonder if Plan B will show up quickly or not. Will Trump show everyone his counterpunch even before the courts settle the Liberation Day business?
Wait and watch I suppose.
See you tomorrow.
-Mike
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