A weekend call between Trump and EU Commission President von der Leyen has markets rallying after the Trump administration agreed to delay tariffs on the EU until July 9 — potentially giving time for the US and EU to work out the details of a trade deal. Of course, the administration is simultaneously negotiating with other large trade partners, such as China, and the on-again/off-again trade policy has left businesses wondering where long-term trade policy will end up.
Earnings season is largely done. Overall, it has been a good quarter, with companies increasing profits by around 13% over this time last year. While most companies have kept their earnings outlook for the year, several companies have said they would have otherwised upped their expected earnings were it not for tariffs. Some major retailers have also lowered their earnings guidance for the year due to tariff uncertainty.
Lastly, it is worth noting that the Federal Reserve was originally expected to cut rates at their June meeting. Markets now expect that they will wait until September. While not a serious issue, this adjustment to a “higher for longer” stance is weighing somewhat on investor sentiment, especially in big tech companies.
Overall, I remain cautious. The recent market rally has brought large-cap prices back to where they were before tariff policies were announced. This suggests that investors suspect tariff policy resolving to a state better than pre-tariff policy. While that may be the case, my thinking is that damage has been done to the economic picture, at least in the short run. Furthermore, it is by no means a given that negotiations with the EU (the US’s largest trade partner) and China (the US’s second-largest trade partner) will be resolved by July. Renegotiating trade has typically taken longer than a month, and I suspect there are some downside surprises lurking this summer.
Chart of the Week
Consumer sentiment has been a topic of conversation lately. Despite staging a minor recovery after falling precipitously through the pandemic, consumer sentiment is now at levels not seen since the Great Financial Crisis of 2008 – 2010 and the stagflationary period of the late 1970s / early 1980s. Of course, whether low sentiment will yield actual consumer strain remains to be seen.
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