Let's Assess the Latest Tariff and Market Developments and the Portfolio's Plan

Tuesday’s stock market reversal and afternoon move lower looks to continue Wednesday as President Trump’s reciprocal tariffs have not only gone into effect, but China announced, effective Thursday, it will raise its retaliatory tariffs on U.S. goods to 84% from 34%. 

Delta Air Lines DAL maintained concerns about consumer spending, and while Walmart WMT reiterated its first-quarter revenue growth forecast, the company pulled its operating income forecast for the quarter citing tariffs on China, Vietnam, and other supplying countries. That reaffirms our concerns about operating margin guidance as we step close to the March-quarter earnings season, which kicks into gear later this week and again next week.

What lies ahead of us is the threatened response from Trump that he would increase tariffs on China further if the country upped its retaliatory tariffs on U.S. imports, which it did. Meanwhile, we continue to wait for word on the pending European Union response to Trump’s tariffs, but we aren’t likely to get many details until sometime next week. Supporting that thinking, Italy's Prime Minister Giorgia Meloni will meet with Trump in Washington on April 17. And as if all this wasn’t enough, Wednesday night Trump said pharmaceutical imports will soon be hit with “major” tariffs.

We’re also hearing chatter that we may hear something about the White House entering formal negotiations over trade and tariffs with Japan, Vietnam, and the U.K., possibly as early as Wednesday. While we would like to be proven wrong, we remain skeptical that initial talks so soon after Trump unveiled his reciprocal tariffs would lead to a quick resolution. More likely this will take time, and we suspect given what’s at stake, we are likely to see Trump hold out for extremely favorable terms to declare a big win and also to set the table for negotiations with other countries. Gaming that out is another reason to think we should not expect any tariff deals near-term.

This brings us back to our prior concerns that June-quarter guidance and S&P 500 EPS expectations are poised to disappoint and be moved lower, which are, unfortunately, looking likely to happen. However, when we look at the business models of Apple AAPL with its Services business, American Express AXP and Costco COST with their membership fee revenue streams, and a few others in TheStreet Pro Portfolio with similar characteristics, there are reasons to think the earnings disappointments may not be as bad as feared. To be clear, we’re not saying those companies will be immune to what is happening, just that the nature of their revenue and profit generation could help insulate them a bit more than the market is fearing.

For now, we will continue to let the portfolio’s defensive positions do their job as we digest incoming data and other comments from companies, Fed speakers, and the like. We’ll be revisiting expectations for the economy, inflation, consumer and business spending and corporate earnings, and factoring that into our thinking about the market, technical support levels, and related items. We will also continue to ferret out new opportunities for when the time is right, as well as ones well-positioned in the economy should the prospects of a recession become more likely.

Thinking on those wise words from Charlie Munger, we aren’t going to sugarcoat anything. The near-term is poised to remain challenging. We purposely raised the portfolio’s cash levels in recent weeks, and we will continue to keep our eyes wide open. 

We’ll do our best not to succumb to emotional investing, and keep our wits about ourselves. As new data and insights are had, we will make tough decisions as needed but do so understanding what lies ahead rather than reacting in the moment. 

At the time of publication, TheStreet Pro Portfolio was long AAPL, AXP and COST.