Trump ushered in what the Wall Street Journal called “the dumbest trade war in history” at the weekend when his administration imposed punitive tariffs on a wide range of products from Canada (25% on non-energy goods and 10% on energy), Mexico (25%) and China (an additional 10% on already-existing tariffs) which were set to take effect on Tuesday. There was instant retaliation in kind within hours from Canada, with the other two countries predictably vowing swift responses of their own.
Ritholtz’s Callie Cox gives a comprehensive, easy-to-read overview of how tariffs work and what they could mean here.
Global financial markets had held out hope that these tariffs weren’t going to be announced and acted completely dismayed when they were. Stock markets plunged in Asia and Europe and the price of oil and the U.S. Dollar exploded higher.
U.S. investors were braced for more bloodletting in risk assets at the opening bell on just another manic Monday and they got it, albeit briefly. The S&P 500 dumped over 1.6% in a couple of minutes with the NASDAQ and Small Caps doing even worse. Crypto plummeted, gutting the baseless theory that cryptocurrency can act as some kind of tariff hedge.
Within a hour of the opening bell, however, it was announced that the Mexican tariffs would be delayed by a month, following contact between Trump and Mexican president Sheinbaum.
Stocks partially rebounded on the news and then held steady, pending a Trump/Trudeau call later in the day, but still closed lower for the session. That phone call resulted in another 30 day tariff pause, announced as markets were closing, leaving China as the only tariff victim. The Chinese retaliated with a rather muted set of levies against the U.S. to go into effect on February 10th, clearly banking on a Mexico/Canada-style deferral in the meantime.
The tariff climbdown boosted markets in Asia and Europe and when U.S. markets opened on Tuesday, stocks moved higher, led by tech names, to almost fill the gap caused by Monday’s losses. After the close, however, Alphabet/Google disappointed with revenue coming in lower than anticipated and capital expenditure blowing through estimates. The stock got butchered in the after-market. AI giant Advanced Micro Devices (AMD) suffered a similar fate after an equally alarming earnings report.
While trade tensions are not at boiling point, they are still on a low simmer that warrants careful attention and it was this sense, along with the soft earnings reports from the night before, that pushed prices lower on Wednesday morning.
Markets shrugged off as just blowhard noise the whole U.S. annexing of Gaza thing and the bizarre (but thankfully brief) suspension of all mail deliveries to the U.S. from China and Hong Kong and stocks spent the rest of the day gently recovering. By the closing bell, the indexes were lightly in the green and longer term interest rates had sunk further.
The Bank of England voted for a quarter-point cut in local interest rates ahead of the U.S. open on Thursday, but presented a toxic outlook of slashed growth projections and a prospect of higher inflation. A slow but steady upward drift in U.S. stocks continued ahead of the big Jobs Report the next day, resulting in another small gain for the indexes. After hours, Amazon disappointed just like Google, falling short of sales and profit expectations and capital expenditure much higher than anticipated. The stock was punished in a similar fashion.
The hugely important latest Jobs Report for January was released pre-market on Friday morning and produced a slight downside surprise of +143k new payrolls, wages moved a little higher and the unemployment rate fell from 4.1% to 4.0%. This evidence of a still super-charged economy pointed towards almost zero pressure on the Fed to cut interest rates any time soon and a strong narrative is rapidly growing that we may well see no rate cuts at all in 2025.
This increasingly pessimistic outlook for a lower Fed Funds rate (see FEDWATCH INTEREST RATE TOOL below) drove shorter term interest rates higher and stocks slumped. They weren’t helped by data suggesting that consumer sentiment is falling sharply. Consumers and investors are rightly concerned by all the tariff talk and chaotic governance and are losing confidence in any continuation of U.S. economic outperformance. The indexes finished the day and the week in the red.
There’s little-to-no room for legitimate disappointment on growth or earnings and tariffs are a major threat to both. Wall Street is underrating the risks right now because it simply does not believe Trump’s rhetoric about meaningfully imposing them. As such, there is definite downside risk for stock prices if it turns out that he actually follows through.
OTHER NEWS ..
Year Of The Little Guy? .. The volatile start to the year has spooked some professionals but has done little to dampen retail traders’ enthusiasm for the stock market and particularly the so-called Magnificent 7 companies. Mom-and-pop investor sentiment has reached the highest level on record, surpassing even what was seen during the meme-stock mania in 2021. Individual investor exposure to stocks is near the highest level its been since 1997.
Even as US stocks got battered on Monday by Trump’s tariff gymnastics, retail investors continued to buy in. They poured $3 billion into stocks that day and then broke the $2 billion threshold within the first 1.5 hours of trading on Tuesday — the largest inflow at that time of the trading session dating back to 2015. About 70% of the inflow went to Magnificent 7 stocks that day.
Americans Are Slapping Down The Plastic Like Never Before .. U.S. consumer debt outstanding unexpectedly surged by the most on record in December, reflecting massive increases in credit-card balances and non-revolving credit.
Total credit jumped $40.8 billion, according to Federal Reserve data released on Friday. The figure topped all estimates. Outstanding credit-card and other revolving debt increased $22.9 billion in December. Non-revolving credit, such as loans for vehicle purchases and school tuition, climbed $18 billion, the most in two years.
The delinquency rate has risen, too, with about 3.5% of card balances past due by 30 or more days and 1.8% of accounts showing as delinquent. Both figures are more than double the post-pandemic lows recorded in 2021.
ARTICLE OF THE WEEK ..
Maybe The Only Chart You Need To Understand 2025
THIS WEEK’S UPCOMING CALENDAR ..
The latest inflation data and another barrage of earnings reports will be the highlights this week.
On Wednesday, we will get to see the Consumer Price Index (CPI) measure of retail inflation for January. With the Federal Reserve's interest rate cuts on hold, investors will be looking for signs of renewed progress in slowing inflation. The following day, the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers will be released
We also get the latest Retail Sales numbers on Friday.
Companies reporting their Q4 2024 earnings this week include McDonald’s, Coca-Cola, Cisco, Moderna, Airbnb, Shopify, AMD, Super Micro Computer, Robin Hood, Coinbase, Deere, Marriot, Doordash, Wynn Resorts and Ventas.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Real Estate (two biggest holdings: Prologis, Equinix) ⬆︎ 1.5% for the week.
Last week’s worst performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) ⬇︎ 2.8% for the week.
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 0.3% last week, is up 2.6% so far this year and ended the week 1.4% below its all-time record closing high (01/23/2025).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 0.2% last week, is up 2.3% so far this year and ended the week 6.8% below its all-time record closing high (11/08/2021).
INTEREST RATES:
FED FUNDS * ⬌ 4.33% (unchanged)
PRIME RATE ** ⬌ 7.50% (unchanged)
3 MONTH TREASURY ⬆︎ 4.35% (4.31% a week ago)
2 YEAR TREASURY ⬆︎ 4.29% (4.22% a week ago)
10 YEAR TREASURY *** ⬇︎ 4.49% (4.58% a week ago)
20 YEAR TREASURY ⬇︎ 4.75% (4.88% a week ago)
30 YEAR TREASURY ⬇︎ 4.69% (4.83% a week ago)
Treasury data courtesy of ustreasuryyieldcurve.com as of the market close on Friday.
* Decided upon by the Federal Reserve. Used as a basis for interbank loans and determining high yield savings rates.
** Used as a basis for determining many consumer loan rates such as credit cards, home equity and auto.
*** Used as a basis for determining mortgage rates.
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬇︎ 6.89%
One week ago: 6.95%, one month ago: 6.92%, one year ago: 6.64%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEDWATCH INTEREST RATE TOOL:
Where will the Fed Funds interest rate be after the next rate-setting meeting on March 19th?
Unchanged from now .. ⬆︎92% probability (82% a week ago)
0.25% lower than now .. ⬇︎8% probability (18% a week ago)
What is the most commonly-expected number of 0.25% Fed interest rate cuts in 2025?
⬇︎ 1 (down from 2 a week ago)
All data based on the Fed Funds interest rate (currently 4.33%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
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