The Trade War Is Poised to Punish Consumers, and Apple Stock Is Exposed
As pressure on markets, the dollar and bonds cause financial stress, when will the tariff battle start to be felt by the average consumer?
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While some market concerns about tariffs have eased as Treasury Secretary Scott Bessent and his team start negotiations with at least seventy countries, the trade battle with China is intensifying and causing increased concern about the economic ramifications.
One of the unexpected consequences of the tariff war is the impact on the dollar and bonds. Both have been under intense pressure as there is a push to "sell America." Typically, economic chaos is positive for bonds and drives rates lower as investors seek the safety of Treasury bonds, but that is being overshadowed by foreign investors — especially China — who are looking to sell dollars and use other currencies to conduct trade.
There is some stabilization in the dollar and interest rates early on Friday but there is increased speculation about the fallout of the full-blown trade war with China. China has retaliated further and is raising tariffs on U.S. goods to 125% on Friday but will ignore further hikes.
The main concern now is that this tariff battle will start to be felt by the average consumer. Apple AAPL is one of the most exposed stocks, with 90% of iPhones manufactured in China. Prices could rise to $2,000 if tariffs are passed through to buyers.
The Trump administration's goal is to drive production from overseas to the U.S. for many products, but it is impossible to do that quickly or easily. There will be sharp price hikes in a wide variety of consumer products, which will be inflationary and slow economic growth.
So far, there are no signs of any negotiations taking place, and the pressure on the dollar and bonds is causing extreme financial stress.
The market is not expecting this crisis to end soon and is struggling to discount the tremendous financial fallout. The unintended consequences and uncertainty are significant, and that will cause continued pressure on the market.
To further complicate matters, we are heading into earnings season with major banks about to report. It will be extremely difficult for managements to provide forward guidance with this level of turmoil taking place. There is no way to predict what will happen, and it is very likely that many companies will suspend guidance due to uncertainty.
President Trump is convinced that the tariff war will be worth it in the long run, but investors have little tolerance for this level of pain, even if it does have a future payoff.
We have some minor bounce action on Friday morning, but the consumer sentiment report at 10 a.m. ET is very likely to illustrate how gloomy things have become.
At the time of publication, Rev Shark had no positions in any securities mentioned.
