Over the weekend, Trump fired off yet another tariff broadside on his way to the Super Bowl. This time he floated the idea of a 25% surcharge on steel and aluminum imports from anywhere in the world, but which would disproportionately impact Canada and Mexico.
Wall Street seemed to have got into a mode of treating what it regarded as Trump’s posturing as just smoke and mirrors until actual policy is implemented and stocks moved nicely higher on Monday, choosing instead to focus on the solid economic data and a generally positive earnings environment. Tech and AI led the way.
After the market close, Trump signed off on the 25% steel and aluminum global tariffs with no exceptions to begin on March 12th, calling it “the first of many” and reiterating that Canada could avoid the pain by becoming the 51st state.
Tuesday dawned with Wall Street in a bit of a different mood. Finally, here was actual tariff implementation, albeit very product-specific. Stocks stumbled out of the gate and interest rates shifted higher.
Fed chairman Powell was grilled in Congress by grandstanding senators on the Senate Banking Committee and predictably ran circles around his amateurish inquisitors, characteristically giving nothing away and saying that he does “not see any reason to be in a hurry” to cut the Fed Funds rate. Nothing new there, then.
Interest rates inched further upwards in response to his remarks and stocks choppily recovered as the session went on to finish the day barely changed.
On Wednesday morning we got the latest reading on the Consumer Price Index (CPI) measure of retail inflation. It came in hot, accelerating by more than in any single month since August 2023 to an eight-month high of 3.0% annualized, with housing, food, air travel and new/used car price inflation all moving higher by more than expected. And all this before the inevitable effect of tariffs kicks in.
Any remaining prospect of imminent rate cuts was shattered and the specter of the next move from the Fed actually being an interest rate increase began to come into focus. Markets freaked out at the opening bell. Interest rates ripped higher and stocks dumped. Tech and Small Caps were particularly pummeled.
A calm, unruffled Powell gave another star turn in front of a different set of clueless clowns in Congress and reassured markets which spent the day recovering from their early morning inflation-inspired meltdown. The NASDAQ round-tripped back to actually end the session fractionally in the green while the S&P 500 finished only slightly negative. Bonds, however, made no such recovery as interest rates remained elevated all day, particularly the 10-year Treasury rate, which determines mortgage rates.
The Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers came out on Thursday morning and confirmed the pick-up in inflation indicated by CPI. Nevertheless, interest rates pulled back a little and stocks rose on the back of yet another positive print on Weekly Jobless Claims.
Later in the day, Trump signed a memo ordering a study to look at options for imposing tariffs on a country-by-country basis. But rather than shine any light on the tariff outlook, the action left many unanswered questions about the timing and extent of the levies. Clarity on the matter was as elusive as ever.
Markets had, however, been led (by the president’s own morning social media posts, no less) to fear a possible immediate imposition of global tariffs. This mellow, half-measure fudge caused a sigh of relief on Wall Street and failed to put a dent in the continued upward momentum in stocks and the drift back lower in interest rates as the major indexes moved back within sight of new all-time high territory yet again.
On Friday morning, we learned that January’s Retail Sales fell by more than forecast, not good news for GDP although previous months’ data was revised upwards. This poked some holes in the long-held thesis of the resilient American consumer.
The tariff bluster never ends; Trump announced in the afternoon that unspecified automobile tariffs would go into effect sometime in April. As things stand, only one tariff (the 10% additional one on China) is in place despite the firehose of threats and announcements since the inauguration.
Wall Street is simply not taking the president seriously right now. It shrugged off his words (and the poor Retail Sales data) and basically took the day off as the indexes went nowhere over the course of the session to finish the week a touch higher. Interest rates continued their downward retracement, completely erasing the big spike of earlier in the week.
Can stocks rally if we keep getting these tariff threats and headlines? I think there’s a world in which they can, but it’s going to require almost universally positive news from the remaining bullish factors of i) stable economic growth (i.e., a soft landing), ii) ongoing Fed rate cuts and zero risk of a hike, iii) Big Tech/AI earnings growth/leadership and iv) an enduring hope of tax cuts.
While the incessant noise brought about by tariff headlines goes on, we should expect a choppy, volatile but basically sideways-trending market that doesn’t meaningfully or sustainably rally or decline until the news flow becomes consistently positive or negative.
OTHER NEWS ..
Give Peace A Chance? .. The prospects of the end or at least significant de-escalation of conflicts in the Middle East and Ukraine is generally viewed as a potential positive for world stock and bond markets but the devil is in the details. America is in a mode of talking, not listening.
The scenario of a Trump-driven forced Ukrainian surrender without the participation of any European negotiators and a welcoming back of Putin’s Russia into the global community, for instance, could well bring an end to the European energy crisis but longer term security concerns could be very problematic.
On Friday, U.S. vice-president Vance took a bit of time off from hanging out with German neo-Nazis to stand up in front of European military, business and political leaders in Munich supposedly to provide some details of the so-called Ukraine peace plan, but he ended up just berating his audience for some of their domestic internal policies that he happens not to like. Not a great start.
There is a strong push-me-pull-you effect going on here, but negotiations about Ukraine have not yet formally started and the Middle East ceasefire is fragile and we can expect upcoming volatility in markets, particularly in oil and natural gas prices, while the narratives develop in terms of both of these conflicts, which have become completely stalled over recent years.
Green Lights .. Trump’s more head-scratching cabinet picks are being waved through by a compliant Congress majority. Anti-vaxxer and all-round strange person Robert Kennedy is now in charge of Health and Human Services. The darling of Russian media and friend of the Assad regime in Syria, Tulsi Gabbard, is Director of National Intelligence. The FBI will be headed by Kash Patel, who has alternately promised to close the agency down and to weaponize it against Trump’s political opponents and “come after” journalists.
The Kennedy pick, in particular, is sending shivers through the healthcare sector (it’s no coincidence that it was the worst-performing sector in the S&P 500 last week) with a sense that the fox has been put in charge of the henhouse.
ARTICLE OF THE WEEK ..
Is $1 Million Still A Lot Of Money?
THIS WEEK’S UPCOMING CALENDAR ..
U.S. markets will be closed on Monday for Presidents Day.
Walmart, Alibaba Group Holding, Medtronic, Arista Networks, Block, Booking Holdings, Newmont, Devon Energy and Occidental Petroleum report this week.
What should be quite interesting minutes from the Fed's late January meeting will be published on Wednesday afternoon.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Technology (two biggest holdings: Apple, Microsoft) ⬆︎ 3.0% for the week.
Last week’s worst performing U.S. sector: Healthcare (two biggest holdings: Eli Lilly, UnitedHealth Group) ⬇︎ 1.2% 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 rose 1.5% last week, is up 4.0% so far this year and ended the week 0.1% 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 was unchanged last week, is up 2.3% so far this year and ended the week 6.9% 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 ⬇︎ 4.34% (4.35% a week ago)
2 YEAR TREASURY ⬇︎ 4.26% (4.29% a week ago)
10 YEAR TREASURY *** ⬇︎ 4.47% (4.49% a week ago)
20 YEAR TREASURY ⬌ 4.75% (4.75% a week ago)
30 YEAR TREASURY ⬌ 4.69% (4.69% 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 for 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:
⬇︎ 6.87%
One week ago: 6.89%, one month ago: 7.04%, one year ago: 6.77%
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 .. ⬆︎ 96% probability (92% a week ago)
0.25% lower than now .. ⬇︎ 4% probability (8% a week ago)
What is the most commonly-expected number of 0.25% Fed interest rate cuts in 2025?
⬌ 1 (unchanged from 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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