Wall Street on Friday notched its best week in over a month, with sentiment almost single handedly being lifted by a surprise U.S. and China trade deal. On Monday, the US and China reached an agreement under which they agreed to significantly reduce their extremely high tariff rates against each other. Investors cheered the move, and the belief is that there will be further de-escalation in trade.
But, the effects of the tariffs will be felt soon. Walmart, which counts 90% of Americans as customers, said they would begin to raise prices this month and into summer. Walmart’s announcement suggests that businesses are running out of options for putting off price increases and have little choice but to pass on the costs to consumers.
And, consumer sentiment continues to plummet lower. The index fell to 50.8, down from 52.2 in April. The number reflects the second lowest from the lowest ever reading of 50.0 in June 2022. Consumer sentiment is now 30% lower than in December 2024.
For the week, the S&P advanced 5.3%, while the Nasdaq climbed 7.2%. The Dow added 3.4%.
Future Wealth’s View
Walmart’s announcement is significant in that it gives all the other retailers an excuse to raise prices as well. “If Walmart is raising prices, so can we” will become the de facto reason for every retailer to raise prices in the coming months. This, in turn, will likely drive up inflation that has remained at levels not to cause any angst in the stock market.
Last week, our report was titled “ Hoping for a good ending to a bad movie”. We got the truce with China but, of course, Trump, who caused this mess has now moved on to other things. This reminds us of the game of three card monte where the dealer talks nonstop. The chatter serves two functions. First, it distracts the victims. Second, and maybe more important, the dealer is deceiving his victims about what’s befalling them. The spiel invites them to imagine they’re playing a game in which they stand a fair chance. In reality, they are being swindled.
Trump’s protectionist instincts have spread pain around the globe without generating any gains. After finally handing the reins on tariffs to Scott Bessant, Trump now moves onto his next target – to pass a big tax cut. Look out for the tweets to begin hammering every senator who votes against the tax cut.