Surprise! Tariff Drama Has Been a Net Positive for the Stock Market
Predictions about tariffs have been wildly wrong and trapped market bears.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Economists aren’t generally known for their accurate forecasts. They were wildly wrong about a recession hitting in the last couple of years and did a poor job of predicting Fed action and movement in interest rates.
Economists have also been very wrong about tariffs. For months, economists have predicted President Trump would impose across-the-board tariffs that would be highly inflationary, trigger a trade war, and hurt the economy.
The reality is that Trump has been very careful in his use of tariffs. He is primarily using the threat to quickly gain trade concessions from other countries. His threat of reciprocal tariffs on Thursday was very incremental and allowed weeks of negotiation before they were imposed.
What the economists failed to understand is that Trump is very worried about triggering inflation or hurting the economy. The fact that they failed to see that is likely caused by political bias, in my view, rather than a careful examination of what Trump is trying to accomplish.
The end result is that all the tariff drama has turned into a net positive for the stock market, in large part due to the fact that so many investors were expecting it to be negative. Bearishness has been running very high, and folks have been poorly positioned because they thought there would be a big drop when tariffs were announced.
To further complicate matters, CPI and PPI reports indicate that inflationary pressures are running hotter than anticipated. However, these reports did not negatively impact the market because of the misreading of the tariff issue. Bonds bounced back sharply on Thursday, and interest rates fell when the tariff issue didn’t turn into the disaster feared.
In addition to relief about tariffs, there have been some very strong earnings reports from growth stocks such as Applovin APP, Dutch Bros BROS, Roku ROKU and others. Over 600 stocks hit new 12-month highs, which reflects strong speculative appetite.
The issue now is that many stocks are extended, and the problem of an uptick in inflation is still present. Retail data will be reported on Friday morning, which may cause a reaction, but the key issue now is that we are heading into a three-day weekend, which may trigger some profit-taking in the best-performing stocks.
What is driving this market lately is poor positioning by folks who feared tariffs. They have been forced to adjust, and that will remove some of the pressure that is fueling the market.
On Thursday, I discussed a new purchase of Nebius Group (NBIS). On Friday morning, Nvidia NVDA reported in a 13F filing that it owns a 1.2 million stake in the company.
At the time of publication, Rev Shark was long NVDA and NBIS.
