Our Roadmap Amid Renewed Trade Tensions

Following a robust May for the stock market, it looks like we will begin June by giving back some of those gains — as we suspected might be the case. There are renewed trade tensions following President Trump accused China of violating a temporary trade agreement, while China accused the U.S. of doing the same. This is a setback following the recent meeting between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, and we’ll want to see what develops if an expected conversation between Trump and China’s President Xi Jinping occurs.

Adding to those pressures, on Friday Trump said he planned to increase tariffs on imported steel and aluminum to 50% from 25%, ratcheting up pressure on global steel producers and deepening his trade war. The European Union, which is currently negotiating with the White House to avoid the delayed tariff increase now set for July 9, warned that this “undermines” negotiations.

In some respects, we’re back to where we were a few weeks ago regarding trade uncertainty, and that means we are taking a careful approach as we begin the final month of the current quarter. Shares of Elastic ESTC and Marvell MRVL are on our near-term shopping list, we will continue to look for a good entry point for Bullpen resident SuRo Capital SSSS, and yes, we are still hunting for other new candidates. However, given the robust May market move and renewed uncertainty, we’re not in a hurry.

Today’s Roadmap: May Manufacturing PMIs, April Construction Spending and Powell

Today we start to get the usual beginning-of-the-month deluge of economic data. At 9:45 AM ET, it's S&P Global’s Final May Manufacturing PMI followed at 10 AM ET by ISM’s May Manufacturing PMI. We’ll cross-reference the data, focusing on new orders, inflation, and job creation as we prep for the May jobs data and upcoming CPI and PPI reports. However, because the manufacturing sector accounts for 10%-15% of GDP, the findings contained in May Service PMIs later this week will carry much more weight.

That said, if the Prices component of ISM’s Manufacturing PMI hits a reading of 70.2 as the market expects, it will be the highest level since June 2022 and reaffirm inflation-related tariff concerns. Such a figure will also bring support for the market having to reset Fed rate-cut expectations that still call for three consecutive 25 basis point cuts in 2025 starting with the Fed’s September meeting. We continue to think that the longer we go without formal trade deals and their details, the more likely expectations will drop for the second half of 2025 for rate cuts and consensus S&P 500 EPS expectations.

Also at 10 AM ET, the April Construction Spending report will be released and it’s expected to show a 0.3% sequential increase. Because the data are for April, given the weaker-than-expected April Housing Starts print, odds are nonresidential construction will be the larger driver of April construction spending. Once we see the innards of the report, we’ll look to revisit our price targets for United Rentals URI and Vulcan Materials VMC, as warranted.

At 1 PM ET, Fed Chair Jerome Powell is scheduled to speak in Washington D.C. at a research conference. We would be surprised if there isn’t some discussion about the trump administration’s push for lower interest rates amidst ongoing tariff implementations. While we don’t expect Powell to break new ground, this will be his first set of public comments following a meeting with President Trump last week. Reports indicate Powell told the president Fed officials will make decisions based solely on “careful, objective, and non-political analysis” we’ll be looking to see if there are any shifts in Powell’s language today.

More Pro Portfolio: (updated June 2)

At the time of publication, TheStreet Pro Portfolio was long ESTC and MRVL.