Wentz Weekly: Temporary Tariff Relief, Earnings Ahead

Wentz Weekly Insights
Temporary Tariff Relief, Earnings Ahead

Investors are experiencing some of the wildest swings in stock prices seen in years with last week another example. By time all was said and done, stock rose 5.70% for the week, led by technology with the Nasdaq up 7.3% and the technology sector up nearly 10%. The underperformers were those that held up better since the global trade war started, including energy, real estate, healthcare, and utilities.

It wasn’t just stocks, but the Treasury (U.S. government bond) market as well. Long-term U.S. government bonds (such as the 30-year Treasury bond) fell Tuesday by the most in one day since 2020 as yields rose over 20 basis points. The 2-year Treasury note saw its biggest intraday spike since 2009, and it was the biggest weekly backup since the 1980s, per FactSet. This is also impacting the currency markets, where the dollar index fell 2.8% last week and is down 10% from its January’s multi-year high. This is a little unusual as historically the dollar rallies in times of market volatility and economic uncertainty.

Volatility surged with the Volatility Index (VIX – known by some as the “fear gauge”) closing above 50, considered crisis levels by some, on Tuesday for the first time since the Covid shutdown and only the third period (the other being during the Financial Crisis) the index has closed above 50. The biggest swing in stocks occurred the same day, when the indexes were up nearly 5% in early morning trading but quickly reversed with the largest blown gain for the Nasdaq since data began in 1982. The S&P 500 index moved into bear market territory (drop of at least 20% from recent highs) during Tuesday’s session, but notedly close above those levels.

Then, on Wednesday, stocks saw another dramatic reversal after an announcement came from Trump that “based on the fact that more than 75 Countries have called Representatives of the United States” to negotiation a solution to trade and due to the fact they have not retaliated, there will be a 90 day pause on the reciprocal tariffs. However, these countries will still see the flat 10% tariff in place during this period.

Stocks were initially down close to 1% but saw a powerful rally, the S&P 500 closed the day up 9.5% for the second largest percent gain since October 2008 while the Nasdaq closed up 12.2% for the second largest gain on record. Another volatile day Thursday made it the sixth consecutive day that stocks had a trading range of at least 5%.

This tariff announcement was the main headline last week. Not only did it include an important pause for some number of countries, it also included a 50% tariff increase on China imports, sparking a series of retaliation by China. The week ended with China raising tariffs on U.S. imports one more time before saying it no longer economically makes sense and any further retaliation by the U.S. will be ignored.

As we mentioned last week, the tariff announcements are similar to a Covid type event; one that we have never seen before. With everything so unpredictable, from inflation, earnings, and economic impacts, markets do not know how to react and the first reaction is going to be to sell out of fear.

As we have seen over the past several days, we expect countries to reach out to continue negotiations. Any relief in tariffs will lead to strong bounces in stocks, as we saw last Wednesday. Some of the strongest up days occur right around the biggest down days. Missing out on one of the bounce days could have a unfavorable impact to your longer term investment objectives. We will continue to monitor the situation.

Outside of tariffs, there was positive news on the inflation front with the latest consumer price index report giving markets a surprise. The index fell in March unexpectedly, with the annual rate dropping to 2.4% from 2.8% and the core annual rate dropping to 2.8% from 3.1%.

However, consumer surveys are showing inflation expectations are at some of the highest levels in years. The Consumer Sentiment survey showed consumer’s one-year inflation expectations in April were at 6.7%, the highest since 1981. Sentiment overall deteriorated as well, obviously due to tariff concerns, with the index level at the second lowest reading going back to 1952.

Outside of tariff news, the next big event is critical and is earnings season which will ramp up this week and next. A couple of the big banks reported last Friday to unofficially kick off first quarter earnings season. Results were mostly positive with higher profits for banks amid higher net interest margins and a very strong growth in trading revenue. JP Morgan saw record trading revenue, rising 48% from last year. There were higher credit costs though, and an increase in loan loss provisions (cash set aside for bad loans) which banks warned could increase in Q2 if economic growth slows.

Earnings estimates have been reduced since the beginning of the year, which started prior to any tariff concerns but picked up since the tariff announcements. On January 1, the consensus expectation saw earnings growing 12.8% for 2025 (to $275 per share on the S&P 500), but this has come down to a 8.5% growth rate more recently.

The risks are leaning toward estimates coming down more. We expect a major theme this quarter to be uncertainty. While Q1 results could end up being just fine, we are more focused on the remainder of the year. We expect many companies to withdraw their 2025 outlooks, choosing to not provide a forecast and most likely citing the uncertainty around tariffs and the economy. This could trigger worries and cause stock multiples (valuations) to move lower.

Other than of earnings and tariffs, we will see retail sales on Wednesday. March is expected to be a strong month with the consensus seeing retail sales increasing 1.4%. Could this be due to purchases ahead of potential tariffs? Possibly. On the political side, Congress is on recess ahead of the Easter holiday, but we expect continued talks on its big budget bill.

Recent Economic Data

• Consumer Price Index: Consumer inflation cooled significantly in March according to the latest consumer price index report. The index declined 0.1% in March which was lower than the 0.1% increase that was expected. The decline led to a lower annual change of 2.4%, down from 2.8% in February. Energy prices fell 2.4% mostly due to the drop in oil price while food prices rose 0.4%. Core prices, which exclude food and energy categories, rose 0.1%, also 0.2% lower than expected, while the annual rate was 2.8%, down from 3.1% in February. New vehicle prices rose 0.1% while used vehicle prices fell 0.7% with both up less than 1% from a year ago. Shelter prices, by far the largest category, rose 0.3% and are up 4.0% from a year ago. Transportation fell 1.4% mostly due to a 5.3% drop in airfares. Finally, the important index subcategory of services excluding shelter rose 0.3% and is up 3.3% from a year ago, a welcoming decline over the past couple months. However, it is important to note these prices were measured well before a majority of the tariff announcements. It will take time to see how these feed into prices throughout the economy.

• Producer Price Index: Inflation at the producer level declined 0.4% in March and, similar to the CPI report above, was lower than expectations. Food prices fell 2.1% while energy prices fell 4.0%. The change from a year ago was 2.7%, a big slowdown from 3.2% the month prior. The price for final demand goods was down 0.9%. The prices paid for final demand services fell 0.2%, due to both a decline in trade and transportation/warehousing prices. The core index, which excludes food, energy, and trade services, is still up 3.4% over the past year, accelerating from 3.3% from last month.
• Jobless Claims: The number of jobless claims the week ended April 5 increased 4,000 from the week prior to 223,000. The four-week average was unchanged at 223,000. The number of continuing claims was 1.850 million, down 43k from a two year high the week prior, with the four-week average unchanged at 1.868 million.
• Consumer Sentiment: Consumer sentiment saw a big drop in March and took another big drop in the initial April survey. The headline sentiment index was 50.8, about 3 points less than expected and dropping from 57.0 last month (and down from the 74.0 level it reached right after the election), for the weakest reading since June 2022. In fact, it was the second lowest level of the survey’s history going back to 1952. The current conditions index fell 7 points to 56.5 while the expectations index fell 5 points to 47.2. Inflation fears have seemingly returned with the one-year ahead inflation expectation at 6.7%, the highest since 1981, while the longer term inflation expectations was 4.4%.

Company News

• Apple: The Wall Street Journal reported Apple is planning to send more iPhones manufactured from India to offset the higher cost of China tariffs. It added the adjustment is a short-term stopgap while Apple CEO Tim Cook tries to win over an exemption from President Trump like he did during Trump’s first term. Analysts estimate that before the tariffs were announced, Apple was on pace to make about 25 million iPhones in India (with about 10 million of those typically supplying India’s market), equal to about 1/3 of U.S. demand using 2024 sales estimates. Another report, from Reuters, said Apple chartered cargo flights to ship 600 tons of iPhones, as many as 1.5 million, to the U.S. from India in attempt to get ahead of Trump tariffs.

• Capri & Prada Deal: Capri Holdings, parent company of consumers brands like Versace, Jimmy Choo, and Michael Kors, and Prada struck a deal where Prada will acquire Versace for $1.38 billion, combining two of the biggest names in Italian fashion. Capri said it needed to divest Versace to focus on turning around its Michael Kors brand and Prada said its acquisition of Versace will help it revive growth as its existing brands start to mature.

• Delta Airlines: After providing a negative preannouncement to earnings last month, Delta shares were higher last week after it provided in its earnings announcement an update to its forecast that was at the high end of its previously announced range and which was above analysts estimates. However, it withdrew its full year guidance over uncertainty surrounding global trade and noted growth has mostly stalled, although still expects a profit this year.

• Microsoft: For the first time, after several analysts have warned recently, Microsoft confirmed it has been “slowing or pausing” some of its data center construction plans, potentially a sign that demand for data centers that power AI might not be as high as previously thought. The news includes halting a $1 billion project on rural land in Ohio. Microsoft said it still plans to spend $80 billion globally to expand its AI infrastructure this year.

• JPMorgan: In JP Morgan’s earning conference call, CEO Jamie Dimon said the economy is facing considerable turbulence and said asset prices are still rather high. Its earnings were better than expected with a very strong showing in equity trading, where revenue was up 48% from last year. 

Other News:

• Medicare Reimbursements Increase: The Centers for Medicare and Medicaid Services announced significant updates for Medicare reimbursements for 2026, saying it finalized a 5.06% average increase in payment rates to insurers for Medicare advantage plans in 2026. It was a major win for insurers, who said payments have not kept up with healthcare costs, with the increased payment more than double the 2.2% proposal in January. Stocks of major insurers moved higher last week as this is estimated to generate over $25 billion in addition revenue. The market has been waiting on the decision to see the administration’s approach to the program, which has claimed plans are engaged in fraud to boost payments, something that has been in more focus the past two years and something the current administration vowed to address.

• Senate Budget Blueprint: Several days after the Senate passed it, the House passed the Senate budget bill shortly after House Speaker Johnson pulled the bill over concerns of opposition from several Republican deficit hawks. The Senate bill required just $4 billion in spending cuts, with maximum flexibility, well below the $1.5 trillion in spending cuts the House called for. The bill now faces challenges with Republicans finding disagreement over tax rates, incentives, Medicaid, and budget deficits. It is also expected to face reconciliation challenges with disagreement over the cost of extending the 2017 tax cuts.

• Tariffs:
  • The week started by the White House threatening 50% increase in the existing tariff rate on China unless China withdrew its 34% retaliatory tariff on US goods. As China did not remove the tariff increase, Trump announced the U.S. would move forward with the 50% increase. In response to Trump’s announcement, China said it will tariff U.S. good at a 84% rate, up from 34%, starting April 10.
  • Triggering a massive market rally on Wednesday, in a Truth Social post, Trump said that based on the fact over 75 countries have called the U.S. to negotiate and due to the fact they have not retaliated, the U.S. will pause the reciprocal tariffs that were announced the prior Wednesday but keeps in place a flat 10% reciprocal tariff. The post also said the U.S. would be raising the tariff on imports from China to 125% (later corrected by the White House to be 145% to include an existing 20% levy) effectively immediately, based on China’s “lack of respect.” The European Union said it was pausing its retaliatory tariffs for 90 days as well.
  • Then, China retaliated by increasing its tariff rate to 125% (up from 84%) effective immediately, however said that at these tariff levels there is “no market acceptance.” The Finance Minister added that if the U.S. “continues to play the tariff game, China will ignore it.”
  • Reuters reported that U.S. chipmakers that outsource their manufacturing will be exempt from China’s retaliatory tariffs.
  • Bloomberg reported Treasury Secretary Bessent is in charge of negotiations to avoid tariffs getting implemented. Trump had cited him and Commerce Secretary Howard Lutnick as “people that are working on deals.”
• Fed:
  • Fed Governor Kugler said the tariffs will be consequential and said the Fed is already seeing some increases in prices as well as acknowledging inflation expectations have moved higher but noted longer-run inflation expectations remain well anchored.
  • Minneapolis Fed President Kashkari said tariffs have raised the bar for Fed rate cuts, meaning it will take a lot more for the Fed to end up cutting rates. He added the Fed’s first priority is keeping long-run inflation expectations anchored which he said is foundational to economic growth and U.S. competitiveness.
  • Boston Fed President Susan Collins said in an interview that the Fed is not seeing any signs of liquidity concerns and the markets are continuing to function well, but would be prepared to intervene if needed. On rate cuts, she said the Fed may still lower rates later this year, but tariff driven inflation may delay further cuts “as confidence is needed that tariffs are not destabilizing inflation expectations.” She said inflation expectations, mainly longer-run, will be an important determinant of monetary policy.

Did You Know…?

Recent Market Superlatives:

With the dramatic moves in stock market the past several days, here are a couple interesting superlatives as reported by FactSet:

S&P 500 surged just over 9.5% on Wednesday, its biggest gain since October 2008, third best performance since 1950 and ninth biggest gain in history. Only eight S&P 500 stocks ended lower on Wednesday, and one was unchanged. S&P saw a 1077 basis point (bp) intraday swing on Wednesday following the 851 bp swing on Monday and 727 bp swing on Tuesday. Nasdaq 100 rallied 12% on Wednesday, its biggest gain since the dotcom bubble, adding more than $2 trillion in market cap. Magnificent 7 added back ~$1.8 trillion in market cap with nearly $440 billion from Nvidia alone. Dow Jones Industrial Average gained 7.9%, its biggest percentage increase since March 2020, while its 2,900+ point jump was the largest ever. US exchanges saw record volume on Wednesday with nearly 30.5B shares traded, while ~130B shares have traded since last week’s Trump tariff announcement. VIX (volatility index) fell 36.4%, its biggest one-day percentage decline in history. Yield on 2-year Treasury note rose by as much as 30 bp at one point, the biggest intraday move since 2009.