Most of the Magnificent Seven tech stocks (Apple, Microsoft, Meta and Amazon) are reporting this week. Just these four stocks represent 26 per cent of the Nasdaq 100 and 19.2 per cent of the S&P 500.
In the past few weeks, much of the investment world and media were questioning U.S. leadership and exceptionalism with the dramatic changes that tariffs could unleash. Friday, the Nasdaq 100 closed about one per cent from the April 2 (pre “Liberation Day” announcement) closing level, almost wiping out the entire shock.
From our lens, the paint splatter tariff war approach and the belligerent rant about the Federal Open Market Committee’s (FOMC) leadership made Wall Street and global investors question that leadership. The walk back has helped to be sure, but it appears that we are still in the early innings of the tariff war. This is more likely about China’s world hegemony desires than a broad trade war.
The facts are that the U.S. runs a services trade surplus with most of the world and a goods deficit. Why fix that? The approach needs to be more specific and targeted than the paint splatter approach we have seen. If there is no material progress by early July (90-day deferral), we are most certainly headed for a U.S. recession according to many.
There is clearly some near-term squeeze potential to the upside here with many likely to have turned bearish on the economic outlook in recent weeks getting forced back in. For now, the soft (survey based) economic data is clearly showing a weakening, but the hard numbers (actual counted) and specifically employment are still ok.
That makes the April U.S. employment report this week pretty important too. It likely takes a few quarters for the economic weakness to develop. Don’t believe for a minute we have the “all clear” on the economy because the Trump administration walked back some of the paint splatter.
For markets to move much higher and reclaim the 200-day average, that is now rolling over in bear market fashion, it likely requires a trade deal with China and that is remote in the coming weeks despite what Trump posts on social media. For the cautious investors, use strength to play defense. The market is once again priced for a perfect outcome, which seems unlikely just yet. Don’t get me wrong, this rebalancing along with tax cuts and regulatory relief are likely positive factors to look forward to in the coming years.
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