VIDEO: Our Moves After Surprise U.S.-China Trade Update
Why the market is likely to give this week’s economic data a pass.
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In today’s Daily Rundown Video, Chris Versace discusses the Portfolio’s reaction to weekend trade developments between the U.S. and China, and the ensuing actions we will take later on Monday morning.
Because it’s Monday, Chris also shares what the Portfolio will be focusing on over the coming days, including April inflation data, Fed Chair Powell on Wednesday, and quarterly results from CyberArk CYBR, Cisco CSCO and Walmart WMT.
Transcript
CHRIS VERSACE: Folks, Chris Versace here. It is Monday, May 12, and it looks like we have a bit of a ceasefire and a de-escalation in tariffs between the US and China. Reports out this morning tell us that the US is reducing its levies from about 145% on China imports to about 30%. China reducing the duties that it slaps on US goods to about 10% from 125%.
And those percentages will be in place for the next 90 days while further trade talks are held. I have to say that I think this is a very positive development, probably one bigger than a lot of folks were expecting to happen. And I say that because remember, late last week President Trump kind of was bandying about an 80% tariff number, to him, sounded about right.
So all in all, I think that the market is going to respond very favorably, probably a big sigh of relief, especially since this data is coming ahead of April inflation data that we'll talk about in a few minutes, April retail sales data, and a big wave of retailer earnings, all of which would have been meaningfully impacted by the tariffs that were in place.
So I think a nice sigh of relief in the market. But it is also one that is going to see us do some incremental nibbling later today when the market opens. To be clear, we won't be starting any new positions. We will simply be rounding out some existing positions that are poised to either benefit from the removal of these high tariff percentages and/or ones that they're small enough in the portfolio relative to others that it warrants putting some additional capital to work.
I will also say that given the news that we saw over the weekend and really the meat of it earlier this morning, it simply reaffirms our decision to exit the portfolios inverse ETFs last week. We did have a nice little gain in each of those. But remember, our thinking was that the initial trade deal with the UK could start to give way to other positive developments. And again, we're certainly glad that we removed them when we did.
And the movements that we'll make today will help bring down the portfolio's cash levels. But make no mistake, we will still have more work to do. We still want to be on the hunt for well-positioned companies poised to grow their EPS far faster than the S&P 500. So even though we're getting this little bit of relief today, what it means for us is business as usual.
Now, one other thing I do want to point out as it relates to this development between the US and China on the trade front is that there will be further negotiations. So we can't rule out other bluster. Is it likely to happen? Well, we know the president's negotiating style, so we're not going to rule it out. But here's the other point. It was something that US Treasury Secretary Scott Bessent had to say is that there could be extensions along the way.
This first reduction in tariffs is about 90 days, so three months. We do know that trade deals tend to take time. And this, if the hope is really to address the bilateral trade deficits between our two countries, it's going to take time. I would not be surprised therefore, if we see some extensions. But it does also mean we could see some additional, as I said, blustering from President Trump. So let's just recognize this, move forward and see what develops.
Now, I will also say that we want to be mindful that some stocks could get overextended. And when it comes to the portfolio, we do have a couple of positions that are over 4% of its assets. Depending on what we see today, tomorrow, and the reception of this news that's unfolding, if they pop meaningfully above 4 and 1/2% of the portfolio, it would be a good problem.
It would also mean that we have to do some prudent moves, so stay tuned for that. We'll see how all of that develops. With all of that, it's very clear what is driving today's market action. We will want to keep an eye on the technicals. But because it is Monday, let's talk about our roadmap for the rest of the week.
Tuesday, tomorrow, we're going to get the NFIB small business optimism index. I don't expect, any impact of what we learned over the weekend and this morning to show up in that data, so we do expect to see it pointing to a slowdown. I would also say we want to continue to watch the uncertainty level found in that data. It's going to be high.
Tomorrow also brings the April CPI report. We do expect it to be not constructive when it comes to rate cuts. But again, the market is likely going to start looking past this data because of this trade deal or trade conversation, I guess, we can call it between the US and China.
After the market closed tomorrow, we do have CyberArk a holding in our cybersecurity ETF. So we want to pay attention to what they have to say about cybersecurity demand, but also AI. How is AI driving cyber attacks? How is it being used to improve cybersecurity? But also too, what does it mean for CyberArk and others in terms of internal productivity? That's been a key piece of us for Amazon and Meta. We want to see what they have to say on AI use inside the company.
Wednesday, we'll get the retail sales report and the Producer Price Index in the morning. Retail sales, again here, there was some concern that with the month of March, there might have been some pull forward ahead of April tariffs. We will see that in the data.
I will share that there's been some other reports from Mastercard Visa that monitor consumer spending, Bank of America too that there was a little bit of a slowdown in the data. Again, just like I'm commented for the CPI, the retail sales report, it could get a bit of a pass as well as the Producer Price Index because of the trade deal. So we'll want to pay attention to that data nonetheless.
Right After all that data comes out, Fed Chair Powell, the Fed big dog is going to be coming out and making a speech. Now, do I expect him to be dramatically different than what he said last week? Probably not. I expect him to reiterate the Fed will follow the data, as will we. Could he Express some positivity about the development between US and China? I think he very well could.
But I expect him to walk it back and say that the Fed and its decision for monetary policy will continue to follow the data. After the market close, we have quarterly results from Cisco. Here, two big buckets for them. One, cybersecurity. So we'll want to see if they match the same comments as CyberArk.
But also networking and networking equipment, networking equip-- Network-- excuse me-- equipment demand. Why are we going to pay attention to this? Well, remember our thinking, that as AI adoption accelerates, it is going to log jam networks, whether they're carrier infrastructure enterprise-- we want to see therefore what Cisco has to say about this-- what its outlook is for, let's call it digital infrastructure spending. And we'll be tying that back to our position in Marvell.
Thursday morning, we've got quarterly results from Walmart. And of course, we're going to pay attention to that because they are a good barometer for the consumer. But we also want to see how they discuss this development between the US and China, largely because it is going to set the tone for what we hear from retailers that report en masse next week. So this is going to be a big report for us to pay attention to and break down.
Friday, we have housing stats. And as we wrap the week with that, we will be looking at, what does the sum of data that we get this week tell us about GDP prospects for the current quarter. But we'll also want to aggregate all the comments from the various Fed speakers. Yes, we will get Powell on Wednesday.
But again, even though he's the big dog, as I like to say, it is a vote by committee. So we will want to see what the rest of the Fed speakers have to say this week. And I believe we're getting all in all, about half a dozen. So that's really what's going to drive us this week. Remember we will be doing some portfolio nibbling, some small buying to round out some positions when the market opens later today. So please be sure to check your alerts.
But also too this week, what do we have? Well, we'll have office hours on tap after today's market close, so that's today, Monday. And then on Wednesday, we will be back with another stocks and markets podcast. So folks, have a great day. Be sure to check your emails and your alerts. We've got a lot more coming your way. Thanks for watching.
