Stocks rebounded this past week. All three major indexes closed higher on the week. The Nasdaq led the way gaining with an almost four percent weekly gain. The TV show South Park was in the news this week for their depiction of Kristi Noem. I have broken down this week’s update using Cartman quotes.
I Don’t Make The Rules, Ma’am. I Just Think Them Up And Write Them Down.
Tariff policy has been difficult to predict. President Trump changed tariff policy again this week. The White House announced new 100% tariffs on semiconductors (computer chips. However, the reaction was not negative because the exemptions to the tariff were more generous than expected. Companies with at least some production in the U.S. will reportedly receive exemptions. That will reduce effective tariff rates significantly from the headline 100% number. Higher tariffs will squeeze corporate profit margins. Near-term price hikes could result. However, I don’t feel the tariffs will be an ongoing source of inflation longer term. The administration will likely finalize most of the trade deals they have announced. I also think they remain open to negotiate with the countries that did have higher tariffs go into effect this week.
I Know Enough To Exploit It.
The tariff uncertainty hasn’t not impacted corporate profit. Businesses have been exploiting the uncertainty to get consumers to accelerate purchasing of their big ticket items. Corporate earnings have been stronger than expected. With 90% of S&P 500 companies reporting quarterly results, corporate earnings season is almost over. So far 82% of S&P 500 companies have beaten analyst estimates, with an average upside surprise of 8.5%. Earnings growth has been led by the communications and technology sectors. The strength has been pretty much across the board. Earnings are down for just two of the 11 sectors (energy and materials) which represent less than 5% of the S&P 500.
Respect My Authoritah!
Federal Reserve chair, Jerome Powell, has maintained the Fed’s independence. The Fed’s refusal to cut rates has been viewed by the President as disrespect to his authority. Powell has the confidence of the market. Investors value the Fed’s independence. Powell’s term however expires in May. We are starting to see his potential successor emerge with Fed Governor Waller establishing himself as the early favorite. Trump on Thursday nominated White House economist Stephen Miran to temporarily fill a vacant seat on the Fed’s Board of Governors. Miran will serve only until January after he is confirmed by the Senate. Miran earlier that same day gave a glowing assessment of Waller. Miran has been an important voice in Trump’s ear so it tells you Waller could be the choice.
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