Exemption Redemption?

Invictus (excerpt)

In the fell clutch of circumstance

I have not winced nor cried aloud.

Under the bludgeonings of chance

My head is bloody, but unbowed.

Beyond this place of wrath and tears

Looms but the Horror of the shade,

And yet the menace of the years 

Finds and shall find me unafraid.

It matters not how strait the gate,

How changed with punishments the scroll,

I am the master of my fate,

I am the captain of my soul. 

 - William Ernest Henley, 1888

Trust yourself. Challenged? Of course you are. Of course, you've been. The mantle of leadership weighs heavy. Perseverance and the ability to persevere itself, are the marks of character. You've borne the burdens of responsibility well over decades. "And yet, the menace of the years finds you unafraid." So be it. 

 "You are the master of your fate, the captain of your soul." They'll try to take you. They'll try to take from you. Rise, friends, for the day is young and opportunities still present. Fear, remember, is but for the wicked. So, let the wicked tremble before us, as we proceed. Victory awaits those true to purpose. Be true. Dig in. Remember your "why." Remember the "why's" for those you must carry... carry them and carry on. Always faithful.

Last Week 

It hardly felt like it. Last Monday, the S&P 500 traded at its lowest level in about 15 months. Same for the Nasdaq Composite. Still, U.S. equities closed higher for the week. Tariff-related developments still dominated the conversation. The U.S. and China continued to raise tariffs upon one another all week, as the trade war between the two escalated. 

Traders and especially investors, however, caught a break on Wednesday as Pres. Trump announced a 90-day pause in the implementation of most of the reciprocal part of the tariffs that had just been placed on almost all U.S. trading partners. This produced the single best single day performance across the S&P 500 in percentage terms since 2008. The Nasdaq Composite produced its second-best trading session ever. 

As the week progressed, March consumer prices surprised Wall Street to the downside, which I had anticipated and projected in this column. However, March producer prices also surprised to the downside, which is something that I didn't see coming. I had thought that perhaps the start of tariff related inflation would be seen at the wholesale/producer level ahead of its visibility at the consumer level. 

Is this some kind of gift? Or is this prolonged deceleration in growing prices simply a reflection of a subdued "buy" side? We know the consumer is weary. We expected a burst of inventory building ahead of this onset of tariffs. Chinese data backs up that concept as that nation's exports were up 12% in March. Up 12% in response to a burst of demand, and it did not greatly impact prices. How interesting. I'd rather live in boring times, I think.

Exemptions? 

Late Friday, The Trump administration appeared to exempt smartphones, computers, semiconductors, solar cells, flat-screen TVs, flash drives, memory cards, and other high-tech or electronic devices from the recently published reciprocal tariffs, even on exports from China. This is the exemption that Apple AAPL CEO Tim Cook had been working so hard to acquire. Apple had received such an exemption during the first Trump presidency and at least for the moment, it looked like he had once again obtained what his company needed. 

On Saturday, the White House explained that the exemptions were made because the president wants to ensure that companies that manufacture technological goods overseas, have the time they need to move that production back to the United States. The exemption stands in place of both the reciprocal tariffs and the 10% baseline tariff that had been placed on all U.S. trading partners outside of North America. The 20% punitive tariff on those nations, including China, that the president feels have not done enough to combat the import of fentanyl into the U.S. still holds. 

The tune changed somewhat on Sunday morning as Commerce Secretary Howard Lutnick appeared on the ABC news show "This Week" and stated that that this decision on Friday night to exempt a range of electronic devices from tariffs implemented earlier this month was only a temporary reprieve. Lutnick expects to announce that these items will be subject to "semiconductor tariffs" that will likely come in "a month or two." 

Lutnick was quoted as saying: "All those products are going to come under semiconductors, and they're going to have a special focus type of tariff to make sure that those products get reshored. We need to have semiconductors, we need to have chips, and we need to have flat panels -- we need to have these things made in America. We can't be reliant on Southeast Asia for all of the things that operate for us."

In case that was not clear enough, Luctnick added: "We can't be beholden and rely upon foreign countries for fundamental things that we need. So, this is not like a permanent sort of exemption. He's just clarifying that these are not available to be negotiated away by countries. These are things that are national security (related), that we need to be made in America." 

Later on, Sunday, Pres. Trump posted to his "Truth" social media account on the matter. This is that post in its entirety:

NOBODY is getting “off the hook” for the unfair Trade Balances, and Non Monetary Tariff Barriers, that other Countries have used against us, especially not China which, by far, treats us the worst! There was no Tariff “exception” announced on Friday. These products are subject to the existing 20% Fentanyl Tariffs, and they are just moving to a different Tariff “bucket.” The Fake News knows this, but refuses to report it. We are taking a look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN in the upcoming National Security Tariff Investigations. What has been exposed is that we need to make products in the United States, and that we will not be held hostage by other Countries, especially hostile trading Nations like China, which will do everything within its power to disrespect the American People. We also cannot let them continue to abuse us on Trade, like they have for decades, THOSE DAYS ARE OVER! The Golden Age of America, which includes the upcoming Tax and Regulation Cuts, a substantial amount of which was just approved by the House and Senate, will mean more and better paying Jobs, making products in our Nation, and treating other Countries, in particular China, the same way they have treated us. The bottom line is that our Country will be bigger, better, and stronger than ever before. We will, MAKE AMERICA GREAT AGAIN!"

OK then. You and I both know that despite this chaos, that may or may not be by design (I can't tell), any tax bills and any plans for deregulation that actually get across the finish line would not only boost financial markets, but also help ease margin pressure on manufacturers trying to reshore operations. 

That's part of the package, or markets will continue to grind lower over the longer-term. We know, or at least we think we know, that while there is not necessarily a "Trump" put or "Trump" bid under equity markets at any specific level, that there does seem to be a policy reflex spot at the 4.5% yield level for the U.S. Ten Year Note.

The Numbers 

What the major to mid-major U.S. equity indexes did as equity markets had one of their best weeks on balance since 2023. Not that the gains made over the past week, while nice enough on their own, pale in comparison the losses suffered the week prior.

- The S&P 500 gained 1.81% on Friday and 5.7% for the week.

- The Nasdaq Composite gained 2.06% on Friday and 7.29% on the week.

- The Nasdaq 100 took back 1.89% on Friday and 7.43% for the week.

- The Russell 2000 gained 1.57% on Friday and 9.7% for the week.

- The S&P Small Cap 600 took back 1.26% on Friday, but just 0.76% for the week.

- The S&P Mid Cap 400 gained 1.42% on Friday and 2.79% for the week.

- The Dow Transports re-took 0.63% on Friday, and 1.89% for the week.

- The Philly Semiconductors recaptured 2.51% on Friday and a nice 10.93% for the week.

- The KBW Bank Index gained 0.63% on Friday and a 4.1% for the week.

On Friday, all 11 S&P sector SPDR exchange-traded funds closed in the green, led higher by the Materials XLB and Energy XLE. Even Communication Services XLC, which finished in eleventh (last) place for the session, gained 0.85%.

For the week, 10 of the 11 sector SPDR funds made gains. Technology XLK easily led the way at +8.76%, followed by the Industrials XLI at +6.55%. The REITs XLRE were the week's only losers at -0.1%, followed by Energy at +0.17%.

Earnings 

First quarter earnings season began in earnest this past week and accelerated on Friday when the large banks began to report their numbers. The financials will still carry the football early this week and then hand the ball off to this week's highest profile release, Netflix NFLX, which comes after the closing bell this Thursday afternoon. 

According to FactSet, for the first quarter, on a year-over-year basis... the S&P 500 is expected to report earnings growth of 7.3% on revenue growth of 4.3%. That's up from 7.0% on 4.2% a week ago. That's nice, but as a reminder, more than a month ago, the expectation was for earnings growth of more than 11%. Health Care is expected to have had a very nice quarter, sporting earnings growth of 35.3%. Four sectors are expected to post Q1 earnings contraction led lower by Energy (-13.7%) and the Materials (-10.8%). 

For the full year 2025, Wall Street now sees earnings growth of 10.6%, down from 11.3% a week ago and down from 14.8% more than a month ago, on revenue growth of 5.3%, down from 5.4% a week ago. 

As far as valuation is concerned, the S&P 500 went into this past weekend trading at 19.0-times forward looking earnings, down from 19.4-times a week ago and 23.6 times 12-month trailing earnings, down from 24.2 times a week back. These valuations are now even further below their five-year averages of 19.9-times forward looking earnings and 24.7 times trailing 12-month earnings.

The GDP Game 

Last week, the Atlanta Fed revised their GDPNow model for the first quarter "up" to a contraction of 2.4% (q/q, SAAR) last week from a contraction of 2.8% the week prior. Outside the gold trade, Atlanta sees a Q1 GDP of -0.3%, up from -0.8%. As most readers probably know, there is no consensus in regard to this contraction. 

Among other regional central bank district branches running close to real-time GDP models, the New York Fed's estimate for Q1 growth now stands at 2.59%, down from 2.6%, while the Cleveland Fed continues to leave its model unrevised at growth of 1.86%. Interestingly, The St. Louis Fed's model was revised sharply higher over the weekend up to growth of 2.87% from 2.01%. 

Where is Hedgeye's Nowcast Model? If you read me often, then you know that I am not very comfortable giving away someone else's work. If you're a reader of mine, you also know that I trust their work enough to pay for it, because I have outsourced the need for retaining a staff in this way. Hedgeye is mildly contractionary on a quarter-over-quarter, seasonally adjusted, annualized basis for the first quarter.

On That Note... 

Goldman Sachs rescinded its call for a U.S. recession for 2025 last week in response to the president's pause (ex-China) in the implementation of reciprocal tariffs for roughly 75 nations that had called the U.S. trying to renegotiate trade policy. 

Let Me Show You Something...

I think we can all agree that the technical analysis in this column has been remarkably accurate throughout this period of heightened volatility. That sounds like a boast. The fact is that I am almost surprised at how closely these markets have colored within the lines and behaved almost exactly as one would think. I'm not complaining.

While uncertainty has made investing more difficult, replacing humans with algorithms have made short-term (Intraday or day to day) moves more predictable than they have ever been in my lifetime. I'd rather an environment more suitable to investment, but we take what the environment gives us.

Readers will recall the bullish "day one" change of trend last Wednesday followed by the "pause" that set up the Friday rally. This came after the bear flag that was followed by the "two-day day-one) bearish turn. So, was Friday a "confirmation day" for our bullish turn? No. Why? Yes, you in the back... "Because there was not an increase in trading volume to support the rally." Very good. Somebody has been paying attention. That could still happen today (Monday), so don't lose hope. Now look at this...

See the orange trendlines that I have added for your Monday morning enjoyment? Nothing but lower highs since March 25. Nothing but higher lows since April 7. Kind of forms a closing pennant pattern, doesn't that. What does that signal? Yes, you in the back again. "An imminent burst of volatility that could go either way." Excellent.

 Closing pennants often foretell a violent move without signaling direction. Bring dry socks, two sources of water, some rations, and plenty of ammo. This is going to get interesting. In a holiday-shortened week no less, so the activity will be compressed.

What's Ahead?

- Just a four-day market week this week. U.S. stock markets are closed on Friday for "Good Friday" while U.S. bond markets will close early on Thursday and remain closed on Friday.

- The U.S. Treasury will auction off $13 billion worth of Twenty-Year Bonds on Wednesday.

- The Empire State and Philadelphia Fed regional manufacturing surveys for April will be released on Tuesday and Thursday mornings respectively. The macroeconomic focus, however, will be on the releases of March Retail Sales and March Industrial Production this Wednesday and March Housing Starts of Thursday. The Atlanta Fed is expected to revise its Q1 GDPNow model both on Wednesday and Friday.

- Right now, I am tracking at least 11 public speaking appearances scheduled for this week by Fed officials. Four of them are scheduled for later today, to be led by Fed Gov. Chris Waller. The headliner for the week will be Fed Chair Jerome Powell, who is set to speak before the Economic Club of Chicago on Wednesday afternoon.

- Though the season has started, the earnings calendar remains rather light this week. That said, there are more firm's reporting now and higher-profile firms at that. Goldman Sachs GS will report this morning. On Tuesday morning, Bank of America BAC, Citigroup C, and Johnson & Johnson JNJ will post their numbers followed by United Airlines UAL that afternoon. On Wednesday, we'll hear from Abbott Labs ABT and ASML ASML ahead of the opening bell and CSX CSX after the close. Come Thursday, American Express AXP and UnitedHealth Group UNH will report in the a.m. followed by Netflix NFLX after the close, but ahead of the three-day weekend.

Economics (All Times Eastern)

No significant macroeconomic data scheduled for release.

The Fed (All Times Eastern)

Noon - Speaker: Richmond Fed Pres. Tom Barkin.

1:00 - Speaker: Reserve Board Gov. Christopher Waller.

6:00 - Speaker: Philadelphia Fed Pres. Patrick Harker.

7:40 - Speaker: Atlanta Fed Pres. Raphael Bostic.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: GS (12.28), MTB (3.40)

At the time of publication, Guilfoyle had no position in any security mentioned.