What Happened Last Week
- Trade Headlines: The US announced new tariffs against Brazil, Mexico, the EU, and others, but pushed the deadline out to August 1.
- Trump vs Powell: The President stepped up attacks against the Chairman of the Federal Reserve (Fed) last week.
- All Time Highs in Bitcoin: Fiscal concerns have also seen Bitcoin make fresh all time highs.
What We’re Watching This Week
- Trade Negotiations: New levies and an extension of the deadline have further contributed to trade uncertainty.
- Earnings: Second quarter earnings season kicks off on Tuesday morning with reports from J.P. Morgan (JPM) and others.
- Inflation Data: June CPI data, which will be released on Tuesday, will be closely watched for signs of tariff impact.
Investment Management Team’s Views
After hitting a new all time high, the S&P 500 finished the week slightly lower on concerns over higher tariffs. The President announced that tariffs against Mexico and the EU would be 30%, and sent letters outlining the tariff level that an additional 20+ trading partners would face. The White House has also instituted a 50% duty for copper and has threatened further action on pharmaceuticals. However, investors seem to be clinging to the positives, primarily that the deadline for these tariffs to go into effect has been pushed to August 1 from July 9. In general, it seems that investors are skeptical that these tariffs will actually be implemented on August 1. Despite this investor complacency, near-term momentum remains on the market’s side.
Once again, the White House has begun to ramp up attacks against Fed Chair Jerome Powell. Despite stronger government bond auctions last week, Friday saw poor price action in fixed income markets. Last week’s steepening of the yield curve indicates that investors view the situation as a potential headwind to lower long-term interest rates. Interestingly, the dollar rallied last week, breaking a recent trend that has seen the dollar weaken during periods of increasing trade tension and concern over U.S. institutional credibility. The dollar still seems like it is in an overall downtrend to us, but it has come a long way in a short period of time, arguing for continued consolidation in the nearterm.
Earnings season kicks off this week with reports from the largest U.S. banks as well as some reports from healthcare, tech, staples, and transport firms. Investors will be closely watching results from the banks for insights into the health of the U.S. consumer and the overall macro environment. Reports from transporters and consumer facing firms will provide further insight into how corporate America and consumers are adapting to the tariffs that have already gone into effect and the uncertainty that trade negotiations are continuing to fuel. In addition to these earnings reports, the June CPI, which investors will be closely watching for any increase in prices due to tariffs, will be released on Tuesday. Later in the week, retail sales and the consumer confidence survey from The University of Michigan will provide an update on the consumer.
