Wentz Weekly: Easing Tariff Tensions Drives Stocks to Pre-“Liberation Day” Levels

Wentz Weekly Insights
Stocks Back to Pre-“Liberation Day” Levels But Uncertainty Remains

After seeing a slow start to the week (stocks down over 2% to open the week Monday), stocks reversed course the remainder of the week to end 4.59% higher with a solid performance on the four-day winning streak. Outside of Monday, it was a risk-on week – FactSet notes high beta (higher risk) investments outperformed minimum volatility investments by the widest margin since November 2022. Investments like Bitcoin (up 12%) and technology and consumer discretionary (up over 7%) were the outperformers, while the defensive investments like gold and consumer staples (down 1%) underperformed. The Nasdaq and S&P 500, up 6.7% and 4.6% respectively, posted their second best week of the year.

The week started with a selloff after calls by President Trump for the firing of Federal Reserve Chairman Jerome Powell. Concerns were rising that Trump’s involvement at the Fed would undermine the Fed’s independence and would damage investor confidence, especially in assets related to the dollar. We don’t see firing Powell is a move that will ever happen, we see it more as Trump laying the way to place more of the blame for a possible economic downturn on Powell and the Fed.

However, it was a strong rebound the rest of the week, perhaps driven by more optimistic comments around trade/tariffs. Early reports are saying that Japan and India are closer to a deal on trade, but details remain light. The reports have said there is likely no agreement to be made soon, rather a “memorandum of understanding” which would be followed by more detailed negotiations, but a finalized deal may take months given how in depth the deals go.

In addition, Treasury Secretary made comments that he sees a de-escalation in tension between the U.S. and China and said the current tariff war with China is unsustainable. Then, there were a couple instances Trump said during the week his team has held talks with China, however China later denied. Other reports have said Trump is indicating his willingness to back down on his tough stance (on China) and is close to cutting tariffs on Chinese goods in effort to de-escalate tensions.

It is possible tariffs could come down via a tiered system, with goods that do not impose a national security threat seeing a lower tariff, perhaps as low as 35%, while those strategic to U.S. interest would still see at least 100% tariffs. Again, this could all change any moment and the situation remains very fluid. We would expect these frequent headlines to continue to create quick and sharp moves in asset prices.

The ramp up in first quarter earnings season has been the other big event happening this week. While commentary has been very mixed, results so far have held up better than the worst case scenario. This may also be due to the fact earnings forecasts were being cut heading into the quarter, so expectations were low, lowering the bar for companies to beat. The companies beating expectations are doing so by a wider margin, while the companies missing expectations are missing by a wider margin than normal, FactSet notes. The current growth rate of profits for the first quarter is 10.1%, up from the 7.2% estimate when the quarter ended March 31, according to FactSet’s Earnings Insights update.

The big theme obviously is the uncertainty around tariffs. Many companies have chosen to cut full-year guidance, or remove guidance altogether. The companies (that have reported so far) that have commented the most and have seen the largest impact have been consumer companies like Procter & Gamble, Kimberly-Clark, PepsiCo, Sketchers, and airlines.

Meanwhile, those that have reaffirmed guidance have mostly said policy and tariffs are too uncertain and volatile for them to update their outlooks. This is creating better reactions to stocks prices versus companies cutting guidance due to the uncertainty.

If there is any impact to financial result it will likely show up in second quarter results as a majority of the tariffs did not take place until April (the start of the second quarter). However the fact companies have been more positive than anticipated is a welcoming sign for investors.

We will get a lot more insight on earnings this week as it will be the busiest week with over 35% of the S&P 500 index set to report quarterly results.

Not only will be see a wave of earnings, but a wave of economic data as well. The first estimate of first quarter GDP will come out Wednesday. Expectations are for a low single digit growth rate with some estimates as low as a 2% decline (due to a surge in imports – that detracts from domestic growth). We will see several labor market reports too, the highlight on Friday with the employment report. Consensus sees about 130,000 new jobs, slowing from recent months. Other important data releases include manufacturing indexes and the personal income and spending numbers that should highlight continued consumer strength into March.

Week in Review:
Stocks were higher across the board last week, seeing the second best week to the year, with higher risk investments performing better. For example, Bitcoin increased 12.2% while the tech sector rose 7.9% and consumer discretionary 7.4%. The four U.S. stock indexes finished as follows: Nasdaq +6.73%, S&P 500 +4.59%, Russell 2000 +4.09%, and Dow +2.48%. Treasuries were mostly higher with the 2-year Treasury yield falling 7 basis points to 3.74% while the 10-year yield fell 9 basis points to 4.24%. The dollar index was relatively unchanged, after several months of declining, while gold took a breather after a strong run higher and fell 0.79% on the week. Oil fell 2.57% as rumors said OPEC was discussing accelerating its output increases next month.

Recent Economic Data

• New Home Sales: New home sales (U.S. Census Bureau) surprised to the upside in March, rising 7.4% in the month to a seasonally adjusted annualized rate of 724,000 homes sold. This was 6.0% above the level from last March. The number of new homes available on the market was relatively unchanged in the month but up 8% from a year ago. As has been the recent trend, the increased supply is coming from completed homes (versus homes under construction or homes not yet started). The median sales price fell 1.9% to $403,600 in March, down 7.5% from a year ago and down 12.3% from the peak October 2022.

• Existing Home Sales: Existing home sales saw another pullback in March with the largest monthly decline since 2022. The seasonally adjusted annualized sale pace of existing homes was 4.020 million in March, down 5.9% from the prior month, falling in all 4 regions, and down 2.4% from a year ago. Existing home sales measures completed contracts, so reflets homes that went under contract in February/March. The report’s chief economist said, “residential housing mobility, currently at historic lows, signals the troublesome possibility of less economic mobility for society.” Inventory is less of an issue than recent years – total inventory of existing homes was 1.33 million units, up 8.1% from February and up nearly 20% from a year ago. It is more about affordability (both rates and prices) and uncertainty. The median existing home price has increased 2.7% over the past year to $403,700.

• Redfin: Mortgage company Redfin said home sellers offered concessions (defined as when an agent reports a seller provided something that helped reduce the buyer’s total cost of purchasing the home) to buyers on 44.4% of transactions in the first quarter of this year, up from 39.3% the same quarter last year and just below the 45.1% record from two years ago. It added 21.5% of homes sold had a final sales price below the asking price along with a concession, up 3% from last year. The number of homes listed increased to a five-year high.

• Mortgage Rates: The average prime 30-year mortgage rate was 6.81% last week, down just 2 basis points from the prior week after seeing a 21 basis point increase the week prior. Rates peaked in the low 7% range the beginning of the year before leveling out in the 6.60%-6.80% range over the past two months.

• Jobless Claims: The number of unemployment claims the week ended April 19 increased 6,000 to 222,000, with the four-week average relatively unchanged at 220,250. The number of continuing claims was 1.841 million, down 37k from the prior week with the four-week average at 1.864 million.

• Durable Goods Orders: Durable goods orders, an advanced read on monthly factory orders, increased a very high 9.2% and was the third consecutive monthly increase. Transportation led the increase with a 27.0% increase, which was due to a 139% increase in nondefense aircraft, and to a lesser degree but still strong 2.3% increase in motor vehicles and parts. Excluding transportation, durable goods orders were unchanged in the month. Core durable goods orders, defined as nondefense core capital goods excluding aircraft, rose 0.1% with shipments up 0.3%.

• Money Supply: The amount of money in circulation, called the money supply which includes cash, deposits at banks and money market balances, increased $92.0 billion in February, or 0.4% and is up $861.1 billion over the past year, or 4.1%. Money supply saw a record $6.32 trillion, or 41%, increase from the beginning of the pandemic to 2022, the root cause of inflation. Since then it moved lower for a brief period in 2023 but has now began increasing at a faster pace since mid-2024, which should keep upward pressure on inflation.

Company News

• Boeing: Reuters said flight tracking data showed Boeing planes delivered to China’s Boeing completion center near Shanghai were returning back to the United States last week amid tariff tensions between the U.S. and China. Boeing later confirmed it is ready to resell jets that were returned from China rather than storing them there without a buyer. Separately, Boeing announced it is selling portions of its Digital Aviation Solutions business, including its Jeppesen navigation unit, to private equity group Thoma Bravo for $10.55 billion in cash. Boeing will retain its core digital capabilities and said the sale strengthens its capital structure and will allow it to focus on its core business (commercial planes and defense business).

• Uber: The Federal Trade Commission filed a lawsuit against Uber accusing the company of using deceptive billing and cancellation practices for its Uber One subscription service. It said the company charges consumers for an Uber One subscription without consent, wrongfully promised savings, and made it “unreasonably difficult” for consumers to cancel the service despite promising consumers they can cancel anytime.

• Ford: Ford said it has stopped shipping its more expensive pickup trucks, SUVs, and sports cars to China to avoid tariffs that have increased in recent weeks. China’s retaliatory measures have pushed the tariff rate to near 150% and for a vehicle like the F-150 Raptor with a price of $100,000 in China it will have a major impact. According to the Wall Street Journal, Ford shipped 5,500 Broncos, F-150s, Mustangs, and Navigators to China last year. The company also exports U.S. built engines and transmissions to China, which the report says have continued.

• Intel: A Blomberg News report said Intel is looking to cut more than 20% of its staff in effort to eliminate bureaucracy, which would mark the first major restructuring under its new CEO Lip-Bu Tan. The cuts will allow it to streamline management and rebuild an engineering driven culture.

• Apple: The Financial Times reported Apple is planning to move the assembly of all of its U.S. sold iPhones to India by 2026. It said Apple has shifted a lot of focus to building its production base in India the past few years, including a new Foxconn facility (its largest iPhone assembler), and has expedited the transition amid the tariff tensions with China.

Other News:

• Tech Selloff: Hitting the tech sector hard on Monday was a report from Reuters that said Chinese chipmaker Huawei plans to start mass shipments of its advanced AI chip to Chinese customers as early as next month. Recall that tech stocks sold off several days earlier after the Trump administration announced new export restrictions on Nvidia’s (and other US chipmakers) advanced chips, including the one Nvidia built specifically for China to get around its prior export restrictions. Huawei told customers last year that its new chip was comparable to Nvidia’s chips.

• Student Loan Defaults to Resume:The Department of Education said it will resume collections on defaulted federal student loans on May 5 and provide other actions to help borrowers get back into repayment, coming after a five year pause due to the pandemic. It said more than 5 million federal student loan borrowers have not made a monthly payment in more than 360 days and are in default status. There are 42.7 million total federal student loan borrowers that owe over $1.6 trillion in student loan debt. The Department will begin sending borrowers notification letters and later this summer will begin sending notices on beginning administrative wage garnishment. The Department press release said “resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education.”

• Higher Tax for Millionaires: A new proposal appears to be gaining traction in Congress with Bloomberg reporting Republicans are proposing to raise the tax rate to 40% on those earnings over $1 million which could bring in $400 billion over 10 years.

• Russia/Ukraine War: The Financial Times reported that Putin is considering a halt to Russia’s invasion and fighting in Ukraine if the U.S. recognizes the annexation of Crimea officially as part of Russia along with four areas of Ukraine that Russia currently has de facto control of. The article added European officials familiar with the U.S. efforts are worried Putin is using concessions to get Trump to accept his other demands so Trump can claim credit for ending the war.

• Trump “No Intention” to Fire Powell: Trump said late Tuesday he has no intention to fire Fed Chairman Powell, adding he would like to see him be “a little more active in terms of his idea to lower interest rates,” and “this is a perfect time to lower interest rates.” This was during a moment in the Oval Office when he was talking to reporters where he also said the 145% tariffs on Chinese goods are not going to be that steep and that they will “come down substantially.”

• Tariffs:
  • China warned other countries against making trade deals with the U.S. that might negatively impact China. The warning comes after a report said the Trump administration was pressuring other countries to curb trade with China in return for exemptions from U.S. tariffs.
  • The Financial Times reported U.S. trade negotiators are pushing India for full access to the country’s ecommerce market as part of trade deal negotiations to avoid tariffs.
  • Politico reported the White House is nearing a trade deal with India and Japan, noting the agreements lack depth until they are finalized which it says could take months. It said for future deals, Trump administration officials are seeking to establish a “memorandum of understanding” or a wider architecture, in other words, an agreement that both sides will talk about doing a deal. The report adds Trump will start rolling out a bunch of these agreements.
  • Following a call by a group of automakers, the Financial Times reported Trump is likely planning tariff relief for auto manufacturers. The report says the relief includes exempting them from some onerous tariffs with a focus on exempting auto parts from tariffs and may also include an exemption on steel and aluminum. Important to note, the 25% tariff on foreign made vehicles would remain in place.

• China Trade War:
  • Treasury Secretary Bessent said in a closed door summit Tuesday he expects the tariff war with China to de-escalate because the situation is unsustainable. He added a deal is possible, even though talks have not started between the two nations. The remarks led to a rally in the stock market Tuesday.
  • Stocks got another boost Wednesday after Trump indicated he is willing to back down from his tough stance on China, saying he plans to be “very nice” to China in trade talks and that tariffs will drop if they reach an agreement, although adding they will not be zero. He also said he did not see the need to play hardball with Chinese President Xi and he would not raise the issue around Covid-19, something sensitive to China.
  • The Wall Street Journal later reported the Trump administration is close to cutting the China tariffs in a bid to de-escalate tensions with China. A senior White House official said China tariffs would likely come down via a tiered system where goods imported that do not pose a national security threat would see a 35% tariff rate while those that are deemed strategic to the U.S. interests would see at least 100% tariffs, resulting in an overall China tariff of between 50% and 65% (down from the current 145%). The tariffs would likely be phased in over five years. It was added Trump has not made a final determination and would need action from China to proceed.
  • China said later in the week that there are “absolutely no negotiations” currently happening and called on the U.S. to “cancel all unilateral tariffs… if the U.S. really wants to resolve the problem,” offering a tough stance after Trump loosened his stance just a day prior.
  • Then, late in the week, a Reuters report said China was weighing the possibility of exempting certain U.S. imports from its 125% tariffs. It has started soliciting companies and collecting lists on which products should qualify, including several semiconductor related items. The list would include things imported to China from the U.S. that cannot be found anywhere else and would shut down the supply chain.

Did You Know…?

The Switch to Streaming – YouTube Dominates

Data from media audience measurement firm Nielsen showed YouTube dominated TV viewership in the latest monthly report. Its “The Guage” measures how audiences spend their time watching TV across all platforms and media distributors each month. YouTube held the top spot, making up 12% of viewership time, follow by Netflix at 7.9%, Disney at 5.0%, and Amazon’s Prime Video at 3.5%. In terms of platforms used to view TV, streaming made up the largest portion with total TV viewing coming 43.8% from streaming services, up from 38.5% a year ago. Cable continued its decline with 24.0% of viewing hours done via cable TV, down from 28.3% a year ago. The pie chart below shows how viewers watch TV and the chart to the right shows what streaming platforms make up most of the streaming viewership.