Cover:
-President Trump's tariff shock has prompted a reassessment of the post-World War II global economic order, prompting investors to revise assumptions about profit margins, investments, and inflation. The administration's 10% tariffs and country-specific tariffs, as high as 49%, on countries with trade deficits with the US were higher than expected. Capital Economics estimates that the average tariff is set to jump from about 2% last year to just over 20%, drawing comparisons to the Smoot-Hawley tariffs that deepened a recession in the 1930s. The tailspin in stocks, with the S&P 500 index shaving $2.5T in one day, underscored the shock. Trump's latest tariffs aim to narrow the US $1.2T trade deficit in goods, which he describes as a national emergency. While the administration may intend to negotiate these tariffs down, the magnitude and creation of these tariffs have eroded trust among US allies.
Interview:
-No update
Tech Trader:
-Apple, a major tech company, is facing significant challenges due to President Donald Trump's recent tariffs and the global trade war. The company's stock has fallen 15.9% since the announcement of the tariffs. Apple has been warning about geopolitical risks since early in Trump's first term, with trade disputes now being the second most prominent risk category. The company has a large global business, with sales outside the US representing a majority of its total net sales. In 2024, 64% of Apple's revenue came from outside the US, making it a clear target for potential tariffs. Apple would have to choose between raising prices, accepting lower gross margins, or a combination of both in the face of a trade war.
The Trader:
-President Donald Trump has initiated a trade war by imposing tariffs on nearly every country worldwide, leading to a 9.3% plunge in the Dow Jones Industrial Average and a 9.1% drop on the S&P 500. The president's statements, which are considered literal, have been interpreted as the only way to stop the selling. On Friday, Trump chose not to back down and reduce tariff rates, sending a message that his policies would never change. On Saturday, 10% baseline global tariffs will kick in, followed by higher tariffs on China, Vietnam, and the European Union. China is set to impose 34% retaliatory tariffs on the U.S., while Canada has announced a 25% retaliatory tariff on automobiles. Some stocks, like General Motors, are trading as if the tariffs won't be fully implemented. However, markets are aware of the danger they are in, especially if a recession occurs. Since 1950, there have been 56 pullbacks of 10% or more, and of the seven times they failed to rebound, six of them occurred during a recession. The odds of a recession in the next 12 months have been increasing, with an average economist surveyed by Bloomberg at the end of March seeing a 30% chance.
-Energy stocks have experienced a significant decline since President Donald Trump's "Liberation Day" tariffs, with oil prices plummeting to their lowest level in nearly four years. The sector has lost over 15% of its gains in the first quarter, making it the worst performer in the S&P 500 index. Natural-gas stocks may fare better if Trump doesn't back off, as their prospects shouldn't be significantly affected by tariffs. The industry is vulnerable due to the potential trigger of an economic slowdown or global recession. Any drop in demand will force operators to slow production or prices to continue falling. OPEC and its allies are ramping up production, with a planned increase in output scheduled for May. Analysts say OPEC players are fighting for market share, and there's an internecine battle between big OPEC players and countries like Kazakhstan. If OPEC's priorities change, it could negatively impact US oil producers, as they may need to reset expectations about the leadership's willingness to provide perpetual price support.
Features:
-Investors are concerned about the impact of the Trump tariffs on the US stock market, with the S&P 500 falling 4.8% in response to the news. The key index has a year-to-date loss of 13.7%. Even if Trump retreats, some of the stock market losses may not be easily recouped, as US business and consumer confidence have been hurt and so likely has America's standing globally. Some industry groups are already pricing in the higher likelihood of a recession, and some investors may be time to consider hard-hit groups rather than defensive sectors like telecom, utilities, tobacco, property and casualty insurance, and consumer staples that held up well during the latest downdraft. One strategy is to buy the strongest companies in the weak groups as a way to potentially limit risk. Such a basket would include JPMorgan Chase, Delta Air Lines, Lennar, Amazon.com, Exxon Mobil, and Freeport-McMoRan. ETF’s focused on these sectors can provide broad exposure for investors. Delta Air Lines is the class act of the airline industry, thanks to its success in maximizing cabin revenue with premium seating, a lucrative credit card relationship with American Express, and an improved balance sheet since the pandemic. Lennar and D.R. Horton are the top home builders in the country with roughly 10% market shares each. Both stocks are down more than 30% from their 2024 peaks and trade for about 10 times projected 2025 earnings.
-Barry Bannister, a Wall Street strategist, has warned that the S&P 500's performance in 2023 is unlikely to improve soon. Bannister, who correctly predicted the index's performance in 2023, believes that the index will likely hover around the 5,500 mark in the second quarter due to investors expecting no major equity index upside absent a sharp reversal by the White House. Tariffs are just one issue, as Bannister notes persistently stubborn inflation and slowing gross domestic product growth were headwinds he was already clocking into this year. The earnings picture for the S&P 500 this year looks gloomier than just a few weeks ago, below general expectations on Wall Street but more in line with his prediction. Bannister expects less than 10% year-over-year growth, compared with the average estimate for midteens. Many other strategists are also warning that S&P 500 profits will be much lower than previously thought because of tariffs. For now, the S&P 500 is pricing in a slowdown, and Bannister thinks it's too early to call a recession. However, he believes his long-held view that stock returns will be more modest in the future. Bannister argues against buying the dip in tech and instead focusing on defensive value sectors like utilities, consumer staples, and various aspects of healthcare, including pharmaceuticals and equipment services.
Europe:
-ASML Holding stock has fallen sharply from its highs last year, with Mizuho predicting that the chipmaking equipment company's stock will not improve until customers Intel and Samsung Electronics invest more. ASML has a virtual monopoly on advanced machines used to manufacture the latest chips, making it a popular stock to play the artificial-intelligence boom. However, its American depositary receipts have fallen by nearly a third over the past 12 months. The slowdown on spending on ASML's advanced extreme ultraviolet lithography (EUV) machines by Samsung and Intel is a pressing issue. Mizuho analyst Kevin Wang lowered his rating on ASML to Neutral from Buy and lowered his target price to €650. ASML's sales are set to drop 3% in 2026, and earnings per share are likely to stay broadly flat as total EUV shipments fall to 49 units from 53 units in 2025.
Emerging Markets:
-No update
Commodities:
-Soybean prices have fallen by 3.7% since June 2023, with prices dropping from $15 per bushel two years ago to $10. The drop comes as China announced an additional 34% tariff on American goods starting from April 10, in response to President Donald Trump's 34% levies on Chinese imports. China has already imposed 10% to 15% on roughly $21B worth of agricultural imports from the US, which have been in effect since March 10. China's General Administration of Customs also suspended import qualifications for three US entities, effectively halting their soybean shipments to China. Analyst Leah Fahy at Capital Economics noted that during the first trade war, China's imports of US goods fell more abruptly than US imports from China, even though China's tariffs went up by less. China is one of the largest export markets for US agricultural products, and soybeans alone were nearly half of the total in 2024. The renewed tension between Beijing and Washington is expected to accelerate the process and leave American farmers holding the bag.
Streetwise:
-Spirit Airlines offers low fares, with a New York City to Houston flight costing about $70 per person round trip, plus $80 in airport fees and taxes. Southwest Airlines, which is attempting a turnaround while suffering an identity crisis and possibly entering an industry slump, is leading the group with a 4% increase since the end of January. Southwest offers two free checked bags as long as you book before May 28. After that, it will start charging for bags like everyone else. Southwest has been offering baggage fees since 2007, but it has been able to maintain its position for 18 years. Melius Research analyst Conor Cunningham recently raised his rating to Hold from Sell, stating that the product in the US domestic market is arguably the best it has ever been. Cunningham believes that many customers have gotten used to flying without checked bags, and an airline that doesn't charge for them is missing an opportunity to add free bags as a perk for its rewards credit card.