Trade War Three

So, it seems we have another trade war. On the one hand, U.S. Pres. Trump signed an executive order that extended the date when his administration's "reciprocal" tariffs would be implemented, or should I write, "re-implemented." That date now moves from tomorrow, July 9, out to Friday, Aug. 1. Sticking to that hand, which I guess we'll call "the bright side," Treasury Sec. Scott Bessent appeared on CNBC on Monday morning and said, "We are going to have several announcements in the next 48 hours."

Now, for the other hand, or shall we say, the other shoe to drop. The president posted letters penned to 14 nations on social media on Monday. These are nations that have not yet come to a forward-looking agreement on trade with this administration and include such key trading partners as Japan, South Korea and Malaysia. These letters inform these nations that goods exported to the U.S. will bear much higher tariffs come Aug. 1. These tariffs would stand anywhere from 25% to 40%.

Are these higher tariffs simply negotiating tactics? Of course they are. That does not make them any less real once implemented and as we have seen in the Congressional Budget Office modeling (or lack thereof) for the recently passed "big, beautiful" bill, now law, have become a key source of revenue, maybe even a necessary source for a nation now facing off with long-term fiscal imbalance.

The president added that, "We're not going to be unfair" and that even this extended Aug. 1 deadline was "not 100% firm." In short, the U.S. is still listening to these countries and these countries can still avoid this increase in their tariff rate on that date if they get back to the table and talk trade.

Why the Trade Battle Matters...

What the Trump administration is attempting here is actually quite admirable. Reshaping an international system of trade that had abused the U.S. middle and lower class for decades is certainly no simple feat. As is obvious, trading partners that enjoyed long entrenched advantages in cross-border trade will not surrender those advantages very easily.

It's just stunning to me, as an economist, that in my early 60s, this is the first U.S. president of my lifetime who actually made an honest attempt to leverage the U.S. market (U.S. consumer) to rebalance these relationships. Just think of the good these policies might have done for the middle class in this country had they been implemented 25 to 35 years ago.

Though the manufacturing base that was once able to provide the U.S. middle class with opportunity at scale has evolved, and inexpensive labor had been prioritized by too many American corporations, this president obviously feels that the rebuilding of that base to whatever degree he can is worth the effort.

The problem, however, is that this effort introduces great uncertainty. Tracking these changing tariffs, changing deadlines, possible retaliation, threatened complications and legal proceedings makes business investment difficult. Also quite visible is the inability of the central bank to act in this environment. At this time, dissention in the ranks at the Fed is glaring. The Fed Chair has shown extreme caution, while several governors and regional branch presidents have been openly critical of that stance.

Still, first-quarter earnings were outstanding. The S&P 500 produced earnings growth of 13.3% on revenue growth of 4.9%. Consensus view for the second quarter is still for revenue growth of 4.2%, but for earnings growth of just 5%. The S&P 500 has a long history of beating expectations. We'll just have to see. Second quarter reporting season starts in earnest late next week.

Marketplace 

Markets reacted negatively to the president's letters and threatened new tariffs. Yields moved higher across the slope of the Treasury curve. The U.S. Ten-Year Note paid 4.39% by day's end. I saw that product yielding 4.41% early on Tuesday morning. The U.S. Dollar Index rallied throughout the session. The weaker dollar, for the new kids, has been a tailwind for risk assets in 2025. That brings us to equities.

The S&P 500 gave up 0.79% on Monday as the Nasdaq Composite surrendered 0.92%. Those were your outperforming indexes on Monday. The Dow Transports were slapped with a loss of 1.47%, while the Philadelphia Semiconductors were beaten for 1.88%. Small caps had no fun either. The Russell 2000 gave back 1.55% as the S&P 600 gave up 1.78%.

That said, former subscribers to the "Stocks Under $10" portfolio and those that still read the series likely avoided the selloff on Monday. Several key names and large Sarge-folio allocations rallied sharply. Rocket Lab RKLB soared 9.03%, while SoFi Technologies SOFI gained 3.61% and Palantir Technologies PLTR added 3.54% for the session. Those are the Sarge-folio's top three holdings in terms of weighting. Don't be surprised if some of these names experience some profit taking on Tuesday morning.

Breadth

Ten of the 11 S&P sector SPDR ETFs closed out the Monday session in the red with the Discretionaries XLY being hit the hardest. That was largely due to a 6.79% beating suffered by Tesla TSLA as CEO Elon Musk makes noise once again about focusing more on politics than on his companies. Energy XLE and the Financials XLF also had rather poor days. The Utilities XLU were the only sector to close in the green which seems a little counterintuitive given the rising Treasury yields.

Losers beat winners by a decisive 7-to-2 margin at the NYSE on Monday and by a rough 8 to 3 at the Nasdaq. Advancing volume took a 39.8% share of composite Nasdaq-listed trade for the day and a 33.2% share of composite NYSE-listed trade. Aggregate trading volume was up a whopping 55% on day over day basis across NYSE-listings and 35.1% across Nasdaq-listings.

Was Monday a Bearish Day One?

The short answer is "no." Monday, while nasty overall, was not a "Day One" bearish reversal of trend, at least not technically. Why, Sarge? Trading volume was up quite a bit. You're absolutely correct. The fact, however, is that last Thursday was a half-day session that came ahead of a three-day holiday weekend. The comparison for technical purposes, falls to last Wednesday.

Aggregate trade across NYSE and Nasdaq listings as well as across the membership of the S&P 500 was lower on Monday than it was last Wednesday and volume was already starting to ebb ahead of the holiday last Wednesday. No, trading volume was not heavy on Monday relative to what we have seen over the past three weeks and no, at least technically, Monday was not a "Day One." That said, if the sell-off continues into Tuesday and the trading volume rises...

Economics 

(All Times Eastern)

06:00 - NFIB Small Biz Optimism Index (Jun): Expecting 98.8, Last 98.8.

08:55 - Redbook (Weekly): Last 4.9% y/y.

3:00 p.m. - Consumer Credit (May): Expecting $10.5B, Last $17.87B.

4:30 - API Oil Inventories (Weekly): Last +680K.

The Fed

(All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights

(Consensus EPS Expectations)

No significant quarterly earnings scheduled.

At the time of publication, Guilfoyle was long RKLB, SOFI, PLTR equity.