Trump Brings More Tariff Uncertainty to an Overbought, Complacent Market
We remain open to opportunities, but the market environment may call for some prudent register ringing.
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We are seeing yet another wave of fresh tariff uncertainty hitting the market Friday morning as President Trump threatens a 35% tariff on certain imports from Canada, and also considers a 15%-20% blanket tariff on most U.S. trading partners, up from the initial baseline of 10%. Combined with Trump’s new August 1 deadline, we continue to see this as the president aiming to regain the trade deal narrative. However, as we’ve discussed numerous times, the supposed “method” behind Trump’s strategy is accompanied by business uncertainty.
Further complicating things, other countries are threatening to respond in kind, which, in our view, escalates the level of uncertainty, especially for companies with meaningful non-U.S. exposure. Multiple times, the European Union has mentioned preparing reciprocal tariffs should trade negotiations fall apart. In response to Trump’s potential 50% tariff on imports from Brazil that could begin on August 1, Brazil is ready to respond in kind.
We’ve also started to see the tariff uncertainty affect corporate guidance and earnings expectations in comments earlier this week from ConAgra CAG and Helen of Troy HELE, and odds are there will be more of that in the coming weeks as June-quarter earnings season heats up. Thursday night, Levi Strauss LEVI management said that for now, it will absorb what it can of the tariff cost. We take that to mean margin headwinds could blow even harder if Trump ups his baseline tariffs or the ante in some other way.
Our response to this increasing uncertainty is to remain cautious but also open to opportunities as they present themselves. With the conditions we discussed with you Thursday — the S&P 500 overbought based on its relative strength index level, the Volatility Index (VIX) flashing market complacency with its reading below 16, and the Fear & Greed Index flashing “Extreme Greed”— we could see a more volatile market ahead.
That is going to lead us to do some modest register ringing later Friday morning as the market opens, taking advantage of two positions that have moved meaningfully higher of late. Both have also crossed into overbought territory and currently make up more than 4% for the Pro Portfolio.
At the time of publication, TheStreet Pro Portfolio had no positions in any securities mentioned.
