U.S. stocks witnessed a positive week, with the S&P 500 index and the Nasdaq notching more record highs. A solid start to the second quarter earnings season and favorable economic data helped buoy sentiment and offset concerns about tariffs and Federal Reserve independence.
Economists have long warned of collateral damage from Donald Trump’s trade war, but after four months of cooler than predicted numbers, the US Bureau of Labor Statistics on Tuesday again reported that US inflation rose less than expected. However, unlike in previous months, the new data signaled that companies are indeed starting to pass tariff related costs on to consumers.
One by one, companies are starting to report the effects of Trump’s policies and tariffs. Volvo Car took a $1.2 billion charge on delays to its new EV model due to US tariffs. Renault cut its guidance. Blackrock reported that one of its clients pulled $52 billion from the firm’s index funds. Mining giant Rio Tinto Group said US tariffs on its Canada made aluminum cost more than $300 million in the first half.
For the week, the S&P climbed 0.6%, while the Nasdaq gained 1.5%. The Dow slipped 0.1%.
Future Wealth’s View
It is widely expected that Trump will impose tariffs on pharmaceuticals as soon as the end of the month, and has plans to place levies on semiconductors too. Both risk driving up costs for ordinary Americans. While the White House is trumpeting its achievement of bringing in billions of dollars in tariffs, the reality is that it is US companies and consumers who are paying for it, not the foreign companies as the administration would like us to believe.
While Trump has lost all credibility – his tariffs, even those at 10-20%, are beginning to reflect in inflation creeping higher. The CPI reading on Tuesday came in at 2.7 percent, up from 2.4 percent last month. It is projected to climb toward 3% in the coming months. While a 3% inflation is not an immediate cause for concern, it will likely delay the Fed from cutting interest rates that could provide much needed relief to consumers.
Wall Street is largely looking past all of the noise and appears to be headed higher in the coming months. But, the positive sentiment belies some of the structural problems that could take the market down in a hurry.
The first signs of a slowdown in the economy will be an unpleasant surprise.