Plus, planning for summer market weather, what retailers are saying and the state of the tax bill.
In a surprising twist this week, a U.S. trade court blocked much of President Trump’s tariff regime, including the across-the-board 10% tariff on all imports, higher charges on imports from Canada, China and Mexico, and the “reciprocal” tariffs—a fluctuating range of levies on dozens of countries that he announced in early April before pausing them for 90 days.
However, within 24 hours of the trade court’s ruling, a federal appeals court granted the Trump administration’s request for a temporary stay on the order, meaning tariffs will remain in effect for now, pending a review.
Even if the administration’s use of the International Emergency Economic Powers Act, citing concerns such as immigration and drug trafficking, is ultimately overturned in a higher court, there are other viable paths for the Trump administration to impose tariffs. This means we should not expect the courts to provide a panacea to the tariff turmoil bracing the economy and markets.
And yet, this legal kerfuffle is another sign that the tariff tough talk may just be that—talk. Following last Friday’s announcement that the U.S. would impose 50% tariffs on European goods on June 1, by Monday, the administration had put those on pause until July. The market, and perhaps our counterparts in trade negotiations, are getting a sense the administration does not have a very high tolerance for market and economic pressure and will be quick to back off when tariffs cause pain.
With that, markets now seem to be largely ignoring most tariff headlines or taking them with a grain of salt. More and more investors have latched on to the TACO acronym, standing for “Trump Always Chickens Out,” which Financial Times journalist Robert Armstrong used in a May 2 column to describe the president’s approach since his tough talk on so-called “Liberation Day” has all largely been paused or watered down. When asked about it, Trump asserted the pattern of proclamations and reversals is a negotiation tactic.
Investors have experienced headline whiplash from the breathtaking pace of tariff starts and stops. For now, they appear to have settled into a benign state of optimism as we wait for the period in the first half of July when the pauses and deadlines will expire. We worry there might be some complacency in the financial markets on this topic, though. While we applaud the recovery in stock prices since the start of April, now is a good time to consider acting on required minimum distributions (RMDs) and charitable gifts you were planning before year-end, as well as more general portfolio rebalancing to ensure you are onsides for however the next episode of this drama plays out.
There is an old market saying that resurfaces around Memorial Day, “sell in May and go away,” suggesting investors should scale back their equity exposure ahead of what’s perceived as a seasonally weaker stretch for stocks.
While the phrase is catchy, history shows the S&P 500 tends to deliver solid returns between Memorial Day and Labor Day. Over the past decade, the index has averaged a 3.9% gain during this period and finished positive 80% of the time.
That said, summer isn’t without risk. The S&P 500 has historically seen an average drawdown of around 7% during these months, often sparked by major global events, like the European sovereign debt crisis, China-related volatility, unwinding of yen carry trades or the U.S. credit downgrade. This year, with tariff pauses and negotiations set to come to a head in July, a tax bill going through Congressional wrangling, and a debt ceiling U.S. Treasury Secretary Scott Bessent estimates will be breached by August, we have good reasons to partner on some portfolio housekeeping to get you ready for additional turmoil, if indeed it occurs.
On the brighter side, companies like Nvidia continue to stun with their growth, reporting results this week that beat Wall Street expectations. That growth came despite U.S. export restrictions on China that forced them to stop sales of H20 chips there. Nvidia reported revenue of $44.1 billion for the quarter, and annual data center revenue growth of 73% in a sign that AI chip demand remains relentless.
Retailers were less sanguine, with AirBNB, GAP, Ulta Beauty, Best Buy and e.l.f. beauty describing how tariffs have weakened demand and created the need for price increases. While bellwether Costco posted solid results as consumers sought value, the company was not immune to tariff fallout, which has resulted in shifts to product lineups and searches for alternate suppliers to help manage price increases given their already narrow margins.
As this article goes to press, headlines are accumulating about Trump’s claim that China has violated its trade agreement with the U.S., and talks between the countries have stalled. Likewise stalled is the “big, beautiful tax bill”—it’s currently in the Senate, with Republicans leading the charge to cut spending and reduce the deficit. In other Washington news, while Trump administration insists that the work of DOGE (Department of Government Efficiency) will continue, its leader, Elon Musk, departs the West Wing today to return to his companies. Trump hailed his ally’s help, but Musk’s departure comes after he swiped at the president’s tax bill in the press, describing it as “disappointing.” Farewell, rocket man, sorry if you thought it was gonna be a long, long time, but perhaps it’s best for investors if you go back to the helm of your businesses.
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