Wall Street on Friday closed out a solid week of gains on a high note, with the S&P 500 index reclaiming the 6,000 points level for the first time since late February. After tensions between the U.S. and China escalated following Trump’s accusation that China had violated a temporary trade truce, they held a phone call on Thursday. Trump said it was a “very good phone call” and that Xi Jinping had invited him to visit China, an offer that he reciprocated. Trump on Friday said members of his administration would meet Chinese officials for another round of trade talks in London on June 9.
The stock market celebrated the annoucement finishing the week higher with S&P 500 breaking 6,000 again. With the recovery of all of the Liberation Day losses and then some, we’re largely back to where we were just three short months ago. Which is to say that markets could once again be too sanguine on the growth outlook as they overlook the sequential cooling occurring in labor markets and the broader economy. And the outlook remains dimmer than three months ago, thanks to the reality of higher, and likely, sticky tariffs at these levels.
For the week, the S&P advanced 1.5%, while the Nasdaq climbed 2.2%. The Dow added 1.2%.
Future Wealth’s View
The stock market is rallying on the premise that the tariff wars will end in some form of agreement with China and all the other nations. But, even a 10-20% tariff will have an impact on the consumer.
While tariff rates may not be enough to push us over the edge into recession, they certainly still amount to incremental headwinds on an already cooling economy. Tariffs raise costs and they will reduce disposable incomes and consequently, discretionary spending. The impact will be felt on a downward revision to FY 2025 earnings estimates. And a downward revision to the S&P 500 2025 earnings could push S&P 500 P/E ratio into “expensive” territory. At Future Wealth LLC, we believe the market could be range bound with not much material upside to the S&P 500 from current levels.
In addressing this week’s unprecedented and altogether embarrassing clash between Trump and Musk, we will leave our readers with this thought – In Russia, those who crossed Putin “accidentally” fell off apartment buildings. In China, those who belittled Xi or the Communist party mysteriously disappeared. In the US, those who were disloyal to Trump were decimated into irrelevance.
Musk could be next.