Trumps clearly enjoying sitting at the dealing table, it’s his bread & butter, his comments overnight were mostly around Mexico and China but the tone on tariffs was clear to us, give me something I want and make me look good and tariffs can be shelved, although the threats are likely to remain during his presidency:
- On Mexico: “We’ve agreed to talk and consider various other things. We haven’t agreed on tariffs yet, and maybe we will, maybe we won’t, but we have a very good relationship.”
- On China: “We’ll be speaking to China probably over the next 24 hours. We don’t want fentanyl coming into our country. Now, we had another big thing, speaking of China. China’s involved with the Panama Canal. They won’t be for long, and that’s the way it has to be.”
The delay to tariffs on Mexico understandably bolstered the positive view that Trump sees tariffs as a negotiating ploy, but is still reluctant to inflict economic pain on Americans, with many experts still believing the tariffs are primarily a negotiating tool – makes sense to MM. Wall Street traders who are pivoting on every new headline around President Donald Trump’s tariff negotiations are being faced with bouts of volatility across asset classes, not for the faint-hearted but exciting news for investors with a clearly defined plan. The tariff situation is a very fluid and evolving situation with one of the biggest uncertainties being how a strong equity market, trading around its all-time high, can push higher through an unpredictable Trump presidency.
- Stocks don’t look/feel ready to endure a meaningful correction – yet!
A ramp-up in trade rhetoric and disagreements concerning global business conditions and sentiment will weigh on revenues, costs and margins, challenging corporate America’s ability to grow earning. For example, Goldman Sachs sees a risk of a 5% pullback in stocks over the coming months as the latest round of tariffs by the Trump administration crimp earnings forecasts. A pullback early in the year, given positioning, valuations and an index trading around its all-time high, should not be discounted especially considering the underlying belief that tariffs are just a negotiating tactic contributed to the complacency. However, as always there are two sides to this equation and if we see a continuation of a solid US earnings season and markets dismiss tariffs as fast as they panicked on Friday/early Monday, we would advocate de-risking into new highs.
- If US stocks can remain firm as earnings forecasts are lowered another pop on the upside will look increasingly likely.
In line with our “3 steps forward, two back” outlook for 2025 we are likely to move up and down then risk curve once, or twice this year.
Interestingly, hedge funds liquidated US equities for a fifth straight week, according to data from Goldman Sachs prime brokerage, as the AI threat from China’s DeepSeek and Trump’s promise to impose tariffs on America’s biggest trading partners rippled through markets. Their positions were looking good early in the overnight session but after the Dow’s 700-point intra-day bounce they might be concerned as to the longevity of the current market “wobbles”.
We believe this year will be one to “plan your trade and trade your plan”. Investors need to look through the current day to day volatile noise, select stocks we want to buy/sell and optimum levels to press either button accordingly, human emotion is likely to chewed up and spat out this year.
This morning we’ve looked at three stocks we are considering from a “what if” perspective so we have a calm piece of mind to potentially catch the “falling knife” if further panic selling ensues – we would be surprised if markets don’t experience further volatility over the coming weeks/months. The stocks touched on today aren’t new to MM this year but we want to reiterate how we’re likely to act if/when further volatility unfolds.
