Wentz Weekly: Tariffs in Question & Nvidia’s Q2 Earnings

Wentz Weekly Insights
Tariffs in Question & Nvidia’s Big
Earnings Report

After rising for three straight weeks, and hitting fresh record highs Thursday, stocks had a slower finish to the week and ultimately ended the week lower by 0.10%. US stocks have seen a strong 33% rally from April bottoms, seeing momentum continue the past several weeks from better than expected earnings, but markets are appearing more fatigued and are running into several headwinds.

These include concerns about an inflection point in AI and competition worries from China, concern over the Fed’s independence after the Trump firing of Governor Cook, tariff pressures on corporate profits in the second half of 2025, and concerns over a cooling labor market.

The first concern about AI spending was top of mind last week after Nvidia’s quarterly earnings report. As we have mentioned not too long ago, Nvidia is so important in today’s markets because of its size. Its roughly $4.5 trillion market cap (when it peaked last Wednesday) accounts for 3.6% of the global economy (measured by global GDP – gross domestic product).

Another way to put it – its value is higher than the total value of all major European stock markets like Germany and France. The only stock markets Nvidia is not larger than is China, India, and Japan (and obviously the US stock market). Apollo Global Management noted the stock now has the largest weighting in the S&P 500 ever, since data began in 1981, making up nearly 8% of the index.

Its second quarter financials that were released last week were better than expected – generating revenues of $46.7 billion, $0.7 billion more than expected. Its guidance for the third quarter was above what analysts had estimated. However the issue was its magnitude of beating earnings expectations and forward guidance (revenue of $54.0 billion) has gotten slimmer. There is upside in estimates though because it said its estimates do not include any potential sales to China. The company noted China sales could generate another $2-$5 billion in sales. The underwhelming magnitude of the earnings beat and forecast caused a 2.2% drop in the stock after the report.

Triggering a further selloff in semiconductors and the AI sector was a Wall Street Journal report that said Chinese cloud computing company Alibaba has created a new chip that is capable of powering many AI capabilities and is more versatile than its other chips. The company’s new chip, as well as other Chinese chip companies new products, are creating fear that they could fill Nvidia’s role in supplying chips that power AI, possibly at a much cheaper price.

Then there’s tariffs. The market headlines around tariffs have taken a backseat to other news after a wave of deal announcements over the summer months. However, we have seen the sentiment shift back to being more cautious after several additional tariff announcements (for example, country specific tariffs and tariffs on steel and other metals) as well as company warnings. Just a sample of announcements we heard last week including Walmart saying it sees further cost increases in the second half of the year, JM Smucker said they will increase prices in response to tariffs, Caterpillar said it will take a $1.5-$2.0 billion hit to profits because of tariffs, and GAP saying it sees a larger tariff impact than initially expected.

In weekend news, which is effecting markets this morning, the US Court of Appeals struck down Trump’s universal tariffs which upheld a previous ruling from the Court of International Trade. This will likely set up a case in the Supreme Court and the court decision to block the Trump tariffs will be paused through October 14.

A negative ruling by the Supreme Court would be a big hit to the administration, but it believes there are still other avenues it can take to implement its tariff plan. However, if the ruling is upheld, there is speculation the US would need to refund existing tariffs. This has caused a move higher in Treasury yields Tuesday morning, particularly on longer dated bonds due to the concern refunding tariffs could cause a spike in new Treasury issues.

This week investors will be focused on several labor market indicators including the main event on Friday with the release of the monthly payroll numbers from the Department of Labor. It comes at a key time as it is the last labor market report before the Fed’s next meeting and is the first since Trump’s firing of the head of the Bureau of Labor Statistics. The firing came after job growth saw a significant downward revision in last month’s report.

Consensus estimates see around 75,000 new jobs in August. A number below this will likely make a rate cut more certain at the Fed meeting September 17, while a higher number may make Fed members more inclined to delay a rate cut and increase the pressure from President Trump.

Week In Review:
After a strong week for stocks two weeks ago, US stocks were slightly lower last week with another outperformance for small cap stocks and the volatility index rising 8% to the 15’s range. The four major indices finished as follows: Russell 2000 +0.19%, S&P 500 -0.10%, Dow -0.19%, and Nasdaq -0.19%. The bond market moved up slightly with Treasury yields a little lower as the 2-year Treasury yield fell 8 basis points to 3.63% while the 10-year Treasury yield fell 3 basis points to 4.23%. The dollar was unchanged while gold rose 2.94% to finish at fresh record highs. Cryptocurrencies sold off with Bitcoin down 7.24%. Meanwhile, oil rose 0.55%.

Recent Economic Data

• Personal Income and Outlays:
  • Personal income increased 0.4% in July which was what was expected and comes after a 0.3% increase from June. The good news is most of the increase was driven by employee’s compensation with an increase of 0.6% in the month while the next largest category of income, transfer payments like social security and other government benefits, were unchanged in the month after seeing big increases the first six months of the year.
  • Consumer spending increased 0.5% in the month which was also as expected, driven by a 0.8% increase in spending on goods, with a large increase in durable goods spending, while spending on services increased 0.4%. The larger increase in spending on goods could be from tariffs pushing prices higher, but that will take several more months to determine if that is a trend.
  • The PCE price index, which is the Federal Reserve’s most watched inflation reading, increased 0.2% in July with the annual rate remaining at 2.6%. The core PCE index increased 0.3% and is up 2.9% over the past year, all numbers that were expected.

• GDP: Second quarter GDP was revised upward to a 3.3% growth rate (which is annualized), up from the first estimate of 3.0% that came out a month ago. The revisions are due to more complete source data and the upward revision was driven by the largest segment of GDP which is consumer spending and to a lesser degree an upward revision to business investments. This was partially offset by a downward revision to government spending and higher imports.

• Jobless Claims: The number of unemployment claims the week ended August 23 was 229,000, down 5,000 from the prior week with the four-week average up slightly to 228,500. The number of continuing claims declined 7,000 in the week to 1.954 million with its four-week average up a little to 1.956 million.

• New Home Sales: The number of new home sales was at a seasonally adjusted annual rate of 652,000 in July, only a slight decline of 0.6% compared to June. The sales rate was 8.2% below the rate from a year ago. Since the pandemic surge in homebuilding in 2020-2021, new home sales have slowed significantly and has consistently been in the 600,000’s range. The supply of new homes on the market was 499,000, relatively unchanged from June but 7.3% above the level from a year ago. The median sales price was $403,800 in June, down for the second straight month and down 6% from a year ago. One trend seen with new home sales is that new homes sold are coming more from completed homes and less from homes where construction has not even started, a signal of lower demand.

• Case Shiller Home Price Index: Home price growth has stalled over the past several months and according to the Case Shiller home price index, home prices declined 0.3% in June which follows a 0.3% decline in May. Compared to a year ago home prices are up 1.9%, decelerating from 2.3% in May, for the slowest pace since early 2023. The report noted the geographical divergence, with pandemic darlings like Tampa, San Franciso, and Phoenix seeing price declines, while places like Chicago, New York, and Cleveland continue to see the largest prices increases (around 6%-7%).

• Durable Goods Orders: Orders for durable goods decreased 2.8% in July, a decline that was expected but was not as bad as initially estimated, however comes after a 9.4% decline in orders the month prior. This is all due to transportation though, as is typically the case, as the index for new orders excluding transportation was up 1.1%. Orders for transportation equipment declined 9.7% due to a 33% decline in aircraft orders. The most important figure, shipments of nondefense capital goods excluding aircraft increased 0.7%, after several solid months of increases.

• Consumer Confidence: The Conference Board’s consumer confidence index reading fell 1.3 points in August to 97.4. The present situations index fell a couple points to 131.2 while the expectations index, measuring consumers’ short-term outlook for income, business, and labor market conditions, fell 1.2 points to 74.8 and remained below a historically key threshold of 80 that typically signals a recession ahead.

• Consumer Sentiment: The consumer sentiment index was 58.2 for the August survey, which was a drop from 61.7 in July and down nearly 10 points over the past year, which may be all tariff related and the resulting uncertainty it has brought to consumers. However this is still a few points above its April/May readings after the initial tariff announcements. The index on current conditions fell 6.3 points to 61.7 while the index on expectations deteriorated 1.8 points to 55.9. Inflation expectations for the next year moved up from 4.5% in July to 4.8% in August while the five-year inflation expectation ticked up to 3.5% from 3.4%.

Company News

• Apple: Apple said it will hold an event September 9 at its HQ which it titled “Awe Dropping” where it is expected to announce its iPhone 17. Rumors are the company will reveal a slimmer iPhone model, new Apple watch models, additional health features, and a new software interface that it revealed will be known as Liquid Glass.

• Intel: The US government is making a $11.1 billion investment in Intel with funding coming from multiple sources including $5.7 billion in grants previously awarded by the CHIPS Act, $3.2 billion from the Secure Enclave program from the Defense Department, and $2.2 billion in grants it has already received. The investment will be passive (no board seats) and will make the government Intel’s largest investor at approximately 9.9%.

• Spirit Airlines: Spirit Airlines is looking for strategic alternatives after a recent financial restructuring failed to put it on a sustainable path. It has hired adviser PJT Partners after recently saying it has doubts on its ability to continue as a going concern, typically verbiage that comes before bankruptcy. It said without a cash infusion it will not be able to meet its debt obligations and unlikely to survive for another year.

• UnitedHealth: The Department of Justice’s investigation into United Health is wider than initially thought with Bloomberg reporting the investigation goes beyond its Medicare practices and also involves how the company reimburses doctors as well as its pharmacy benefit manager (PBM) OptumRx. The report noted the company has not been accused of any wrongdoing and the investigation does not mean any charge will be filed.

• Keurig Dr Pepper: Dutch coffee company JDE Peet’s will be acquired by Keurig Dr Pepper in an all cash transaction valued at about $18.4 billion, the companies announced. The value reflects a 33% premium to where shares traded prior to the news. Keurig said the deal will unlock operating and financial benefits including about $400 million per year in cost synergies. It also said once the transaction closes, it plans to split the coffee and beverage units into two separate companies with the coffee business being the world’s largest pure-play coffee company.

• American Eagle: American Eagle shares moved higher after it said it signed a deal with Kansas City Chiefs player Travis Kelce to launch an AE x Tru Kolors by Travis Kelce lifestyle brand, and comes shortly after Kelce’s engagement to Taylor Swift.

• Abercrombie & Fitch: A multiple year partnership was made between Abercrombie & Fitch and the NFL that makes the company the first official NFL Fashion Partner for the league, extending its licensing agreement it has had in place since 2022. Men’s and women’s apparel that represents all 32 of the NFL teams will be available in the stores and online.

Other News:

• US Sovereign Wealth Fund: After announcing the US government’s investment in Intel, the Director of the Economic Council Kevin Hassett said the investment may be the base of a US sovereign wealth fund and said at some point he expects more transactions such as the Intel one. Also, Commerce Secretary Howard Lutnick said Trump is thinking about taking equity stakes in major defense contractors and other industries.

• Fed Governor Fired: Trump said he will remove Fed Governor Lisa Cook from her position. This comes after the Federal Housing Finance Agency Director Bill Pulte raised questions about mortgage fraud committed by Cook where she claimed two primary residences to get better mortgage terms (since mortgage rates are often higher on second homes). Cook responded by saying Trump has no authority to fire her and she will not quit while her lawyer later responded saying they will challenge her removal in court. Trump said he is now close to securing a majority of his own nominees on the Federal Reserve Board, a way to get interest rate cuts faster.

• Tariffs:
  • Trump said early in the week he was launching a “major tariff investigation” on furniture over the next 50 days. He added the US may impose new tariffs on imported furniture to encourage more production of furniture in the US rather than Vietnam and China. This sent furniture related stocks like Williams Sonoma, Wayfair, Arhaus, RH, and Lovesac lower.
  • Trump said he may retaliate against countries that impose a digital tax on US tech companies with substantial new tariffs and restrictions on chip exports.
  • Trump said he may impose a 200% tariff on China if it does not ensure flow of rare earth magnets and threatened to restrict exports of Boeing planes and parts.
  • The additional 25% tariffs on India went into effect last week, bringing the total rate to 50%, one of the highest tariff rates imposed by Trump, which was because India continues to purchase oil from Russia. India’s Commerce Ministry was reportedly saying Indian exporters impacted by the tariffs would receive financial assistance and be encouraged to diversify to markets like China and Latin America.

• China Summit: Meanwhile, Chinese President Xi announced China will host a regional security forum next week and invited world leaders that have been targeted by Trump including India and Russia.

WFG News

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