Market Faces Fits and Starts After Surprise U.S.-China Trade News
Plus, more companies share the impact of tariffs, including potential price increases.
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Despite the pre-market move lower in S&P 500 heavyweights Apple AAPL and Amazon AMZN following Thursday night’s March quarter earnings reports, ahead of the April Employment Report, the market is poised to move higher.
A contributing factor is reports that China is assessing the possibility of trade talks with the U.S., the first indication that negotiations could begin between the two sides. We view this as constructive and while we may be hopeful about what comes next, we continue to think these talks will be measured in weeks not days and that the ultimate details will be what matter most.
As they stand today, Apple shared that trade tariffs could add $900 million in cost, while General Motors GM commented that the Trump administration’s tariffs would increase its costs by $4 billion to $5 billion this year. In response, we are seeing companies from Stanley Black & Decker SWK, Adidas ADDYY, Procter & Gamble PG, Best Buy BBY and AutoZone AZO telegraph that tariffs will likely force them to raise prices.
In the coming weeks, we will see a shift in the March quarter earnings season for retailers and related companies and we strongly suspect they will discuss the impact of tariffs on their businesses following reports of significant drops in cargo from China. We could very well see them join the ranks of companies preparing to raise prices, another sign that some inflation pressures aren’t likely to abate near-term. Also, the re-jiggering we expected in consensus S&P 500 earnings is happening for this year but, given what’s ahead, we should expect more to come.
Our two cents is that recent economic data, including the 1Q 2025 GDP contraction and renewed inflation pressures seen in the April ISM Manufacturing PMI and what we are likely to see in the corresponding Services data next week, is helping spur the White House in trade talks with China as well as the other 17 key trading partners for the U.S. Gaming things out, as the initial dominos fall with the first few announced trade deals, we’ll have a better sense of headwinds for the economy, inflation and corporate earnings.
While the market may respond with a sigh of relief or a dash of renewed hopium, we’ll enjoy it, but also recognize the potential for fits and starts with trade talks between the two countries. That said, we will begin to examine or in some cases re-examine Portfolio candidates that have been hard hit in recent weeks and stand to benefit from either much lower tariffs or their removal.
Coming up, we'll share our thoughts on earrings from Apple, Amazon, and Universal Display OLED, as well as those for Eaton ETN.
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At the time of publication, TheStreet Pro Portfolio was long AMZN, AAPL, ETN and OLED.
