We Agree With Dimon: Expect More Guidance Pulled
Let’s recap current tariff twists and turns and why we’re looking past that March PPI print.
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The tariff drama continued this morning with China responding to Trump’s latest increase with another one of its own that takes tariffs on U.S. goods to 125%. China did throw chip manufacturers a bone by providing an exemption for U.S. semiconductor firms that outsource their manufacturing. This explains the divergence we are seeing this morning in chip companies like our own Qualcomm QCOM, Nvidia NVDA, and Marvell MRVL that use third-party manufacturing compared to Intel INTC, Texas Instruments TXN, Global Foundries GFS and others whose chips are fabbed in the U.S.
Now to see if Trump initiates yet another tariff increase on China imports as we wait to see what develops between China and the U.S. on trade talks. The word being reported is Trump and the White House are not planning on reaching out to China, preferring instead for China to make the first move.
Ahead of any further moves on the tariff front, as we head into the weekend here’s a recap of tariffs currently in place:
- 10% global tariffs on all imports, excluding energy, pharmaceuticals, and chips. But Pres. Trump promised special pharmaceutical tariffs at a later date. Higher country-specific paused until July 9.
- 145% tariffs on all Chinese imports; China retaliated with 125% tariffs on all U.S. goods. Pres. Trump told reporters earlier this week he "can't imagine" raising China tariffs beyond the current rate of 145%.
- 25% tariffs on imports from Canada and Mexico with USMCA goods exempt. The government of Canada retaliated with 25% tariffs on non-USMCA-compliant U.S.-made vehicles. Canada also put tariffs on other U.S. goods such as steel, aluminum, and motorcycles.
- 25% tariffs on autos.
- 25% tariffs on steel and aluminum.
The European Union said it will put tariff countermeasures on hold for 90 days; they want to give negotiations with the US a chance.
April Michigan Consumer Sentiment Survey vs. March PPI
While the March producer price index surprised to the downside relative to consensus expectations, as we discussed on Wednesday, the market is looking past it, given the tariffs. Helping give some needed context for the subject, we turn to Federal Reserve Bank of Boston President Susan Collins, who this morning said, “It’s really important to take into account the fact that tariffs are applied not just to final goods that are imported, but also the imported intermediates,” which account for 44% of all imports.
Collins went on to say, “Those imports are much more broad-based than many people realize,” and that’s part of the reason she believes interest rates may remain on hold longer than she previously expected.
Data from this morning’s preliminary April data for the Michigan Consumer Sentiment Survey showed consumers are expecting higher prices ahead. The year-ahead inflation expectations quickened for the fifth straight month to 6.7% in April, the steepest since November 1981. The same report showed consumer expectations plummeted in April to 47.20, the lowest figure in the last 10 years. The combination of these two data points suggests consumers are likely to remain restrained in their spending and look for ways to stretch their spending dollars.
Corporate Guidance Remains a Market Headwind
Early this week, Delta Air Lines DAL pulled its 2025 guidance and Walmart WMT yanked its operating profit for its first quarter of 2025. We can add computer peripheral maker Logitech LOGN to that list as it also withdrew its current fiscal year outlook amid changing tariff policies in the U.S.
We’ve states our concern for 2025 earnings per share expectations several times now and the growing likelihood that the consensus EPS forecast for the S&P 500 would be revised lower. Joining us in that thinking is JPMorgan’s Jamie Dimon, who said he expects estimates for corporate earnings to fall amid the uncertainty created by Pres. Donald Trump’s trade negotiations. As part of those comments, Dimon also said he expects more companies to pull their guidance.
We see that as well. In addition to the impact of tariffs, slowing consumer spending, and business investment spending, we can also add U.S. Defense Secretary Pete Hegseth has signed a memo directing the termination of $5.1 billion in wasteful Department of Defense contracts. That is likely to impact guidance from not only prime defense companies but the companies like Booze Allen BAH, Accenture ACN, and others that serve them.
The Pro Portfolio is long QCOM, NDVA and MRVL.
