Untangled Tariffs – by Justin Vaughn, Editor, Options Trading Report)

Last week was a barn burner… Index records were broken daily with the S&P 500 and Nasdaq Composite hitting records at the close on Friday. 2nd quarter earnings reports continued mostly positive with a majority besting year over year numbers. So far, many heavy-tech companies have continued posting better earnings for many quarters. The Artificial Intelligence sector results are stronger than economists and strategists ever expected, surprising many that the ‘take-off’ would be so profitable. Mr. Powell gave little indication what the Fed would announce on Wednesday, as early reports indicate possible internal haggling. President Trump’s August 1st deadline for countries to come-together is nearing, with many scrambling to rush to the negotiation table. Investors on the other hand are patiently waiting for a resolution. Both Canada and Mexico, heavy trading partners of the U.S. are slowly beginning to loosen demands and show willingness to negotiate. The week up looks to be more of the same as last week… as investors and traders show no signs of stepping back, letting up, now armed with continued earnings reports and strengthening economic conditions. As the week closed, the 10-year Treasury yield remained steady, finishing at 4.385%, a bit lower. The Dollar showed slight weakness “amongst a basket of foreign currencies.” Oil stayed steady for the week near $65.00 a barrel, as surpluses began to mount.

President Trump’s trade success with the European Union sparked the market …on-and-upward, with indexes again sprinting higher. The EU tariff agreement that had ‘dogged’ the market for weeks, now finally has come together. The S&P 500 and Nasdaq Composite touched new records, as the market was heavy with buying of AI and big tech stocks. Jason Pride, chief of investment strategy and research at Glenmede said; “ the U.S. stock market had largely priced in a deal by the time of the announcement. That’s why you’re not seeing a big upside and you’re also not seeing a big negative reaction.” Two big deals, with the Japanese and European Union, seemingly closed with ease as market anxiety has softened giving investors and traders good reasons to buy. Two remaining countries, China and Mexico, both important trading partners with the U.S. are proving to be tough negotiators as cementing a deal has proven elusive. Secretary Scott Bessent is working on an extension for a ”tariff truce” with China that expires August 12. Stocks retreated Tuesday, breaking a streak of record setting indexes since last week. Heavy techs, including the Magnificent 7 were lightly battered as profit-taking took a slice of value. The Russell 2000, heavy on value stocks, was overly active with many investors pivoting staple funds. According to the Bureau of Labor Statistics JOLTS update is showing some ‘cracks,” as unemployment creeps up. Wednesday Mr. Powell announced that “rates will be held steady.” Two Governors dissented, a first in many years. Both Christopher Waller and Michelle Bowman made a strong effort to sway fellow members, but to no avail. Attention now focuses on the September 16-17 meeting and the fresh data there-of. Thursday morning’s release of the PCE (Personal Consumption expenditures) illustrated higher inflation and higher retail June prices. This data is very relevant to the Federal Reserve in their decision making.

The Price is Too High….Home prices have escalated to levels that now have stalled sales. The usual “hot spring sales” did not materialize. This year high prices, excessive inventory and stubborn mortgage rates have unbalanced the selling market. Home sales in June fell to their lowest in 9 months. Heavy inventories are still building and mortgage rates are steady at 6.5%. According to the NAR (National Association of Realtors), the average home selling price in June was $435,000, up 7% from a year earlier adding that unaffordable homes are the main reason for the slump. Chief NAT economist Lawrence Yun said, “The fact that we hit a record high home prices is reflecting multiple years of undersupply.” He adds, “After an unusually slow Spring ‘25, the market could stay “stubborn throughout the summer and fall, unless mortgage rates drop…signiuficantly.” As inventories continue to grow, and buyers “wait out sellers,” prospects for the market to open up are… thin.

RUMBLINGS ON THE STREET

Al Root, Writer for Barron’s, “THE TRADER,” Barron’s – “If investors can simply look beyond Trump, they might like what they see.”

Jack Ablin, founding partner at Cresset Capital, WSJ – “Investors have pretty much compartmentalized the tariffs. At this stage its mostly a bottoms-up problem rather than a top-down problem.”

Randall W. Forsyth, writer “UP AND DOWN WALL STREET” Barron’s – “To be sure, the bullish sentiment in the market has been stimulated, in part, by excitement about artificial intelligence, which is expected to transform how we work and live. The massive investment required to bring about the AI revolution, from the hardware to the providers of energy to power datacenters, also augurs huge payoffs.”