Trump Tariffs: Shock and Awe

Index, sector & asset Performance

Even with the early down start to the week, caused by Sensitivity to AI related news, the week looked great, until Friday around noon, with every other financial market in the world closed, White House press secretary Karoline Leavitt, took to the podium and announced the US President Donald Trump will impose tariffs on Saturday of 25% on Mexico, 25% on Canada and 10% on China. Later Friday, President Trump said that Canadian oil would be hit with lower tariffs of 10%, which could take effect later in February. The President also said he planned to impose tariffs on the European Union in the future, saying those countries had not treated the US well.

And with that, the computers, algorithms, and short-term traders took over and the SP500 rolled over and went from up about +.5% to down -.5% in nearly a straight line. Instead of the S&P500 closing the week at a new weekly ATH on the back of strong earnings reports, lower interest rate yields, and a lower dollar, it closed the week down and chartists will likely start talking “Double top formations at 6100”.

Heres’ the Daily, 5-minute chart of the SP500 for last week with Friday’s press conference timing noted as well as the move down in the cash SP500.

This morning, U.S. equity futures are down by -1.35% (DJIA), -1.57% (SP500) and -1.75% (NASDAQ 100) with the catalyst for the global selloff being the dramatic weekend tariff and trade news.

Interest rates ended the week lower with the benign macro data. The 10-year yield ended close to 4.50%, the lowest in about a month, while the Fed-sensitive 2-year yield settled in around 4.20%. The real interest rate curves are lower while inflation breakeven are higher.  Not a good combination.

The FOMC meeting was as expected with Chair Powell reiterating confidence in the economy and patience on rate cuts. The market now has two rate cuts in 2025.

Economic indicators and Earnings commentary

The U.S. economy expanded at a slowing but solid +2.3% pace in 4q24. Consumption rose +4.2%, the best in two years, while an inventory reduction lowered the headline by 1%. Core PCE rose +0.2% m/m and +2.8% in 2024.  The ISM manufacturing and services reports on Monday and Wednesday, and Friday’s employment report.

4Q2024 earnings season continued strong however forward guidance is being more conservatively positioned. This week PLTR, ADM, REGN, PFE, REGN, PEP, CLX, and MRK lead the earnings parade.

With the wide fluctuation in the US dollar, here is a Goldman Sachs chart breaking down the S&P500 by revenue per international market. In total, S&P 500 companies derive 28% of revenues outside the US.

Global market trends/Commodities/Currencies

Oil prices in the U.S. declined into the low $70s as traders awaited tariffs. On Friday afternoon, President Trump announced a 10% tariff on Canadian energy products. Midwest oil refineries rely heavily on Canadian crude, and gasoline prices in the Midwest could increase as a result.

Gold crossed $2,800/oz for the first time ever and has now gained 36% since the start of 2024.

Bitcoin fell toward $95,000 this weekend.

The US Dollar is rallying considerably this morning on the back of the Trump tariffs and trade issues.

Oak Harvest Weekly Stock Talk: American Exceptionalism, a Soft Landing not so Softly.  https://www.youtube.com/watch?v=hooCYTLau-Q