Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
Earnings & Valuation Under Trump 2.0 So Far
Even though Q1 earnings were fabulous, most economists, industry analysts, and corporate managements have low hopes that Trump’s Tariff Turmoil won’t dunk the US economy into a recession this year. Not us: We’re counting on the economy’s resilience. Today, Dr Ed discusses why the widely expected recession, like others in recent years, will be a no-show. Hard-to-ignore reasons include record-high forward earnings, strong economic indicators, and a forward P/E that hasn’t plunged as happens when a recession is imminent. Stock investors seem to be in our camp. Moreover, Trump’s tariff overreach is bound to be tempered by the courts and mid-term election realities if nothing else. … Also: Dr Ed reviews “How To Make Millions Before Grandma Dies” (++).
Oil, Consumers & Driverless Taxis
Oil prices have sputtered amid fears of weak global oil demand in a trade-warring world. Today, Jackie reviews news that bears upon the supply/demand balance underpinning oil pricing. The decision by OPEC+ to no longer underproduce should increase supplies, but that could soon be offset if US shale producers curb their production while oil prices are low. News of the US and China talking trade is supportive for global oil demand and pricing. … Also: Reports from the front lines of the Consumer Discretionary sector, where different companies are feeling Trump 2.0 impacts to different degrees and in different ways. … And: Are you ready to hail driverless taxis? They’re ready for you.
On Europe & S&P 500 Earnings
The Eurozone is improving economically as the US remains cloaked in uncertainty, its exceptionality being questioned by some. Melissa explores the countervailing forces affecting the Europe’s economic growth prospects and suggests that its equity markets might offer some opportunities at this juncture. … Also: Funds flow and equity market performance data suggest a rotation: Investment dollars have been exiting the US stock market and flying off to Europe. But is the rotation poised to reverse? … And: Joe examines recent estimate revisions activity. Even though last week’s revisions for S&P 500 companies were upward on the whole, the broader trend in forward earnings remains downward.
On European Auto Industry& The BOJ
The reordering of global trade patterns stemming from Trump’s Tariff Turmoil is having distinct ramifications for market players and policymakers the world over, as William explains today. Inexpensive Chinese imports flooding into Europe’s auto markets are confounding the industry stalwarts and presenting policy conundrums. … Different policy conundrums have been dumped in the laps of central bankers in Japan and the US, and the decisions of each affect the other. Fed rate cuts could cause the BOJ to shift policy course, and simultaneous rate cuts by the two could shake financial markets worldwide.
Is The Recession Over Already?
We believe in the resilience of the US economy. Recent years’ monetary tightening didn’t bring on a recession; this year’s tariff turmoil isn’t likely to either. We’re lowering the odds we see of a recession back to 35%, where it had been in early March. One reason is that China and the US appear ready to start negotiating a trade deal. Trump needs to get past trade issues for the Republicans to keep their majorities in Congress after the midterms. … Also: The Index of Coincident Economic Indicators has been rising to new record highs. And Friday’s jobs report boosted our confidence in the labor market’s resilience. …And: Time to raise our S&P 500 target?
Tariffs, Earnings & Batteries
Trump’s Tariff Turmoil has resulted in tectonic upheavals of the operating environments companies navigate in myriad industries, and few chief executives know what the future will bring or how to plan for it. Today, Jackie reports on the tariff impacts seen by three CEOs in different industries—semiconductor manufacturing, steel, and global travel—and how they’re thinking about the uncertain future. … Also: A look at how the uncertainty has affected forward earnings for the S&P 500’s sectors and industries. … And: An update on the race to improve electric vehicle batteries.
On The Dollar, The Debt & Earnings
Investors can dismiss worries that the US dollar’s weakness presages an emerging-market-style crisis. That’s impossible for the US. Foreign investors need dollars to invest in US assets, which retain their clear advantage in attracting investment capital. We attribute the recent dollar weakness to the strong euro and devaluation of high-P/E Mag-7 stocks, which foreign investors shed amid Trump Tariff Turmoil. … Also: Melissa discusses expectations for the House’s tax reconciliation package that should stop Trump 1.0’s tax cuts from expiring this year—which won’t come cheap. … And: Joe reports that tariff-related uncertainties are reflected in analysts’ estimate revisions, skewed uncharacteristically downward despite strong Q1s.
Does China Need The US?
In setting cartoonishly large tariffs on China, Trump assumes the US has the upper hand. But does China really need America as much as Trump thinks? President Xi hasn’t come crawling to Trump, pleading for softer terms; he’s been working out new trade deals with other Asian nations. Today, Contributing Editor William Pesek exposes the Trump administration’s potential miscalculations regarding China. China has been diversifying its export markets ever since Trump 1.0 in anticipation of just such a trade war, and it no longer needs the US consumer to meet its GDP growth goals. Moreover, China has a higher pain threshold than Americans can fathom (“chiku”) as well as unused stimulus options in its arsenal.
Anatomy Of A Correction
A dovish faction has been forming within the Federal Reserve Board, dissenting from Chief Powell’s hawkish party line. Rather than wait and see whether tariffs deliver greater blows to the economic or the inflation outlook before changing monetary-policy course, the doves claim that the economy is more vulnerable and espouse lowering the federal funds rate sooner rather than later. Dr Ed sides with Powell & Co. So does the data: So far, there’s more evidence of tariff-induced inflationary pressures than economic weakness. ... Also: The recent stock market correction partly reflects late January’s revaluation of tech stocks in reaction to the Deep Six ramifications. Now investors may be embracing the Mag-7 once again. ... And: Dr Ed reviews “Companion” (+ +).
Tariffs Hit Energy & Industrials
The US oil and gas industry isn’t in the direct line of Trump’s tariff fire, but it’s affected nonetheless, Jackie explains. Slower global economic growth in a trade-constricted world will dampen energy demand; that prospect is hurting oil and gas prices. Halliburton execs say their oil-drilling customers need oil prices above a critical level in order to warrant the expense of drilling. Moreover, Chinese importers of US propane will be hard pressed to afford it with China’s retaliatory tariffs in place. Long term, however, natural gas prices should head higher. … Also: How tariffs are expected to impact two industrials companies, 3M and RTX. … And: A look at how AI is revolutionizing the study of genes.
More On Trump’s Tariffs
Importers are responsible for paying tariff bills, but it’s Jane and Joe Consumer who will carry most of the burden. Importers will try to protect their profit margins by offloading the tariff costs to their export partners and customers when possible; when consumers lack substitution options for imported must-have products, they’ll pay up. … Also: Trump’s tariff tactics should surprise no one; they’re straight out of his book The Art of the Deal. Melissa draws the connections. … And: Joe reports that analysts’ net earnings estimate revisions for S&P 500 companies haven’t been so downwardly slanted for two years. Only two S&P 500 sectors had upward NERIs in April.
On Edge For 90 Days, More Or Less
Trump’s Tariff Turmoil has put the world on edge. A new world order may be the ultimate result, but for now we’ve got the New World Disorder, leaving everyone scrambling to adjust to Trump’s unpredictable policy pivots. The economic fallout is uncertain. The uncertainty is keeping Wall Street on edge. It’s keeping US trading partner nations on edge. It’s keeping YRI on edge. Today, Dr Ed reviews the timeline of Trump’s tariff proclamations; Trump’s frustrations with a Fed chair who won’t be cowed and can’t be fired; the mid-turmoil expectations for GDP, inflation, corporate earnings, and stock valuations; and the economic impacts of Trump’s tariffs on China and Europe. ... Also: Dr Ed pans “The White Lotus,” Season 3 (-).
Tracking Consumers & Nvidia’s Investing
How is the US consumer doing? Jackie examines the evidence. Trump tariff turmoil likely distorted the clues in March retail sales, and Tesla and Amazon weighed on the S&P 500 Consumer Discretionary index. We take a look at bank consumer lending and Americans' trips to Vegas for clues. Also: US importers appear suddenly to have stopped front-running tariffs as they work down inventories. Much anecdotal evidence even suggests they’re cancelling orders already placed. … And: In the wake of new government export restrictions costing Nvidia big bucks, we look at the acquisitions that expand the company's offerings beyond chips.
On Trade & Earnings
Today, we evaluate whether China or the US has more leverage in the trade war. China has a good hand but depends heavily on the US consumer to absorb its production. Whichever side “wins,” the victory will come at the expense of global growth. … Also: Melissa summarizes the USTR’s report on other countries’ trade barriers that disadvantage US companies doing business abroad, with examples from China, the EU, and Canada. … And Joe notes unusual estimate revision behavior for the first weeks of a quarter: Analysts have been cutting their earnings and revenue expectations even before knowing Q1 results or getting new guidance from managements.
More On Inflation & Bonds
Tariffs are stagflationary, but consensus expectations may be overestimating the inflationary impact and underestimating the downside risks to growth. We evaluate the disinflationary forces that may counterbalance tariff-included price increases. … Also: The bond market’s recent volatility may reflect a fundamental reevaluation by investors at home and abroad regarding the safety of US government debt. The continued decline of the dollar and appreciation of haven assets in Europe support this argument, while the impact of levered Treasury trades unwinding appears to be less significant.
Bonds Away!?
Long-term Treasury bond yields surged last week despite news that March inflation was subdued and consumer sentiment is falling fast. That’s partly because the federal budget deficit is too d@mn high! In the past, recessions and lower long-term bond yields were associated with higher deficits; but the budget deficit has been widening since Covid despite a growing economy. Supply of long-term bonds also affects yields, but less so since the Treasury Department started issuing more short-term debt in 2023. Observers have been perplexed by the rise in long-term yields, but the reason for it may simply be that global demand for US Treasury bonds has shriveled, as Trump’s Tariff Turmoil is raising inflationary expectations.
CEOs On Tariffs, Health Care & 3D-Printed Skin
The best laid plans of many a CEO have been blown asunder by Trump’s Tariff Turmoil. Jackie reports on what corporate leaders are saying about the tariffs’ potential impacts and the strategies they’re considering to keep earnings aloft—and to keep smaller firms afloat. … Also: Investors taking cover in the S&P 500 Health Care sector need to be selective: All of its industries don’t offer the same degree of shelter from the tariffs storm. … And: 3D printing isn’t just for inanimate objects anymore. Scientists are developing ways to 3D-print human organs using live cells.
Tariffs Are More Tumultuous For Foreigners
Global trade is being reordered, and the new US trade policies are likely to slow global economic growth over the near term. But for various reasons, we think the US stock market will outperform its foreign counterparts, especially in the event of a global recession. We maintain our Stay Home, versus Go Global, bias. US stocks are fundamentally stronger than international ones, supported by stronger productivity growth and wider profit margins. … Also: With the US stock market on the precipice of bear market territory, Joe takes a statistical look at bear markets throughout history, including one in 1934 triggered by the White House’s reshaping of trade policy.
Who Will Save The Day?
Amid the recession fears heightened by Trump’s Tariff Turmoil, we take a look at what usually causes recessions. Our Credit Crisis Cycle (CCC) theory posits that financial system crises, unmitigated by intervention, lead to credit crunches. No such crisis has occurred, yet the financial markets are acting as though one has. Their distress is high but not enough to warrant Fed intervention—yet. As it stands, this is a manufactured bear market that can be reversed. … Also: We chat with Jim Lucier of Capital Alpha Partners for a status update on how Trump 2.0’s promised tax cuts are faring in Congress. Our assessment is that regardless of the end result, tax cuts are unlikely to offset tariffs—a tax hike—as they stand.
Annihilation Days
Trump’s Liberation Day last Wednesday triggered Annihilation Days on Thursday and Friday, with the Stock Market Vigilantes giving a costly thumbs-down to Trump’s Reign of Tariffs. Trump officials say they aim to make Main Street wealthy again even if that’s bad for Wall Street. The problem is that Main Street owns lots of equities traded on Wall Street, so the two streets prosper and suffer together. Congress can’t do much to stop Trump given his veto power, but he might get the message that hurting Main Street’s stock portfolios can cause a recession and jeopardize the GOP majority in Congress. If so, he might postpone the reciprocal tariffs, giving trade negotiations time to work. Also, the courts might block Trump’s tariffs. An early end to Trump’s tariff nightmare would result in a V-shaped stock-market bottom. We’re counting on that; the alternative is just plain ugly.
Onshoring, Hidden Bulls & AI In Fintech
The onshoring trend that began under Trump 1.0 and was spurred on by Biden legislation is bound to accelerate with Trump 2.0’s tariffs. Several big corporations have announced new US factories in the blueprint stage already. … Also: Most stocks aren’t as woebegone as market index performance stats suggest. Jackie highlights the S&P 500 sectors and industries that have been chugging on upward so far this year, bucking the market’s trend. … Also: A look at innovative ways that fintech is using AI.
Tariffs Are Messy
With so much focus in the media on how the Trump tariffs can be expected to affect the US economy, Melissa today discusses how they’ll likely affect other countries. Surprisingly, China may be less vulnerable than initially assumed, while the US’s two North American neighbors may bear the brunt of the pain. … Also: What if the tariffs trigger a global recession? The US might outperform the rest of the world’s economies in that case; it’s better positioned to do so for several reasons. … And: Joe’s data on analysts’ estimate revisions for S&P 500 companies in aggregate suggest investors will be treated to better-than-expected Q1 earnings, possibly representing double-digit y/y growth.
Inflation In Trump’s World
Yesterday, we changed our stock market and economic projections owing to Trump’s “Reign of Tariffs”; today, we explain our thinking about the higher inflation we now expect. People’s expectations about future inflation are critical to how high inflation actually climbs since the expectations of economic actors alter their decisions, which Fed Chair Powell often points out. So will the Fed raise the federal funds rate to keep inflation expectations well anchored? Or will it cut the rate to keep the crisis from Washington from crippling economic growth? Our conclusion: Neither. We’re sticking with our “none-and-done” Fed forecast for this year.
Trump’s Reign Of Tariffs: Stagflation Odds Up, S&P 500 Target Down
The expected fallout from Trump 2.0’s Reign of Tariffs undercuts our former bullishness and dims the prospects of our base-case Roaring 2020s scenario for now. It has also drained confidence in the US economy on the parts of everyone from CEOs to consumers to investors. Recent data showing manufacturing faltering and purchasing managers paying higher prices suggest stagflation is already taking root. We’re dropping the odds we assign to our Roaring 2020s scenario from 65% to 55% and upping the odds of a stagflation scenario, which may include a recession, from 35% to 45%. That 45% is also the probability we see that the stock market’s correction will deepen into a bear market in coming months. Yet we still expect an up year, with the S&P 500 rising above 6000 by year-end. ... Also: Dr Ed recommends skipping “Eileen” (- – -).
On Utilities, Inventories & EVs
Utilities long have had notoriously tepid demand, but that may change over the coming decade as more and more planned data centers plug into the grid. Jackie counters the argument that a bubble is brewing in data centers with statistics from a recent report. … Also: Frontrunning the coming Trump 2.0 tariffs is a popular inventory strategy for firms in various industries, but it carries the risks of tying up cash and leaving companies overstocked if sales drop. … And: With a manufacturing compound the size of San Francisco churning out cheaper and faster-charging EVs, China’s BYD may leave Tesla in the dust.