Hope you are all doing well. Happy Memorial Day! Let us never forget the brave men and women who served our country and gave their lives for the freedoms we enjoy each day. Each of the three major U.S. indexes fell around 2.5% for the week as stocks failed to maintain momentum from the prior week’s strong gains. At Friday’s close, the S&P 500 was 5.6% below the record level that it set three months earlier. George Wendt passed away this week, I have broken down this week’s update using quotes from his iconic Norm character on Cheers.
“What’s going on, Mr. Peterson?”
“A flashing sign in my gut that says, ‘Insert beer here.'”
The markets will always give you a sign of what investors want. This week the bond market is telling the Senate that they need to trim more fat from the big, beautiful bill. The yield of the U.S. 30-year Treasury bond climbed above 5.00% and reached its highest level since 2023 as House lawmakers approved a budget bill that’s forecast to increase the U.S. government’s deficit. Yields of shorter-dated Treasuries also rose but not as sharply as the yield of the 30-year bond. The 30 year hasn’t been above 5.00% for an extended period since 2007.
“Can I pour you a beer, Mr. Peterson?”
“A little early isn’t it, Woody?”
“For a beer?”
“No, for stupid questions.”
As I have been saying the past couple of weeks it was a little early to say we are out of the woods on the tariff turmoil. The overly optimistic market snapped its six-day string of gains on Tuesday. Much of the previous week’s initial relief over prospects for a U.S-China tariffs truce diminished.
The lack of progress on finalizing trade deals has been concerning. On Friday, my concern proved justified as President Trump said he is “recommending a straight 50% tariff on the European Union” after complaining that trade negotiations have stalled. Trump later said he is “not looking for a deal” with the EU. The announcement came after Trump threatened to impose a tariff of at least 25% on Apple if the company does not start manufacturing iPhones in the United States. The market digested the new threats reasonably well, that is because it is believed Trump is posturing. That he has no intent on keeping the tariffs on long term. I think that notion is a little bit misguided. The 10% tariff is probably here to stay. I agree it’s likely he eventually gets rid of the currently paused tariffs.
I believe he will only do so if countries acquiesce to some or all of his demands. As for the EU I wouldn’t be surprised if he delays the tariffs beyond June 1 because he needs to maintain his currently rising approval ratings to get his legislation through the Senate. He also would like to have positive GDP growth this quarter, to avoid a recession. Starting an all out trade war with Europe hurts both of those goals. After the bill passes through the Senate and the economy avoids recession all bets are off. Again I am still hopeful that trade deals get done over the next 5 weeks. However, if they don’t, I think the paused tariffs are going back on until countries bend and give the U.S. the trade concessions Trump is asking for. The market should be looking at the administration’s actions towards Harvard and let that serve as a harbinger of what they might do to countries that try to fight them on trade.
“What’s new, Norm?”
“Terrorists, Sam. They’ve taken over my stomach & they’re demanding beer.”
Crypto and hard assets have taken over as the new safety trade when tariff volatility strikes. The price of Bitcoin climbed for the sixth week in a row and briefly hit a record high of nearly $112,000 on Thursday. As of Friday afternoon, Bitcoin was trading around $109,000, up nearly 6% for the week and well above a recent low of around $75,000 in early April. Likewise the price of gold also climbed nearly 6% for the week to around $3,360 per ounce as the precious metal recovered all of the ground lost in the previous week’s decline. It is sitting just below its record high of more than $3,400 an ounce.
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