Tariff Fears Are Easing, But Economic Headwinds Are Developing
Here's the key issue for equities now as Jerome Powell goes before Congress and CPI and PPI reports await release.
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The market is bouncing back on Monday following some ugly action on Friday. A mixed jobs report and concerns about tariffs pressured stocks and sent interest rates higher, but the concerns have subsided as Trump is set to impose tariffs on imports of steel and aluminum. He is also putting into place reciprocal tariffs against China.
The market has been very skittish whenever there is talk about tariffs, primarily because economists keep warning about the negative impact of blanket tariffs. The problem is that Trump doesn’t appear to have any intention of imposing broad, blanket tariffs. He is using tariffs as negotiating leverage. It took less than 24 hours to extract concessions from Mexico and Canada, and the Europeans cut auto tariffs even before any negotiations started.
In my view, many economists hold a political bias against Trump, which drives them to keep predicting the worst-case scenarios. However, it is becoming increasingly clear that Trump is concerned about the market reaction to tariffs and using tariff threats strategically to obtain his goals.
With some of the concern about tariffs decreasing, attention will turn to economic matters. Fed Chair Jerome Powell is scheduled for his twice-a-year appearance before Congress, and CPI and PPI reports will be issued later this week.
The jobs news on Friday shook things up a bit as wage inflation was higher than expected, while revisions continued to indicate that there hadn’t been any real job growth in a long time. The market will be listening carefully to Powell this week for any indication that the Fed is looking to cut rates soon, but that is unlikely.
The key issue for equities is whether the rotation out of the Magnificent Seven MAGS will continue. The only stock in the group that has been performing is Meta META, but the others are now oversold enough that they may be due to bounce.
While the rebound in secondary stocks and the Russell 2000 IWM faltered on Friday, we are moving into small-cap earnings season now, so there should be pockets of volatility as they hit.
The mood is upbeat on Monday morning as the tariff issue seems to have shifted but there is still the danger of more news that could upset the market once again.
At the time of publication, Rev Shark had no positions in any securities mentioned.
