US stocks were mainly in the red and I suspect the reason why won’t surprise you.
You see, this week there were several revelations for Donald Trump that would have made him see red and encouraged him to take actions that equity markets don’t like.
The big development that made his blood boil would have been the Court of International Trade on Wednesday putting a stopper on most of his reciprocal tariffs outlined on April 2 (or Liberation Day as he called it). Ironically, the market loved this news because it meant that ‘maybe’ the US would have to go back to specific trade negotiations with other economies backed by support from Congress. However, Trump would’ve hated this decision as well as the judges who came up with it.
The court ruled that Trump had overstepped his authority when he invoked the 1977 International Emergency Economic Powers Act (IEEPA) to declare a national emergency and justify the sweeping tariffs.
Predictably, Trump’s team went for an appeal and were granted a 14-day stay for them to keep applying the tariffs while putting together a defence. White House experts say the President will probably fallback on a provision of the Trade Act of 1974 to implement tariffs of up to 15% for 150 days, if the IEEPA play is again ruled illegal by the Appeals court.
This realisation that Trump could still find a way to hit his trading partners with tariffs wasn’t a plus for stocks, as the weekend loomed.
Adding to the President’s redness was the nasty disclosure from a former Trump team member, Anthony Scaramucci that the world shouldn’t be too worried about these tariffs rocking global economies and financial markets because of the TACO theory. Scaramucci said TACO is an acronym for Trump Always Chickens Out, meaning he talks a tough game but generally it’s all talk to get what he wants, and then works out what he threatened wasn’t doable, even for him.
Trump experts insist his playbook is based on what his mentor Roy Cohen called his ‘golden rules’ that go like this:
- Attack, attack, attack.
- Deny everything.
- Andno matter what happens, never admit defeat.
And yes, that sounds like the kind of thing the US President has become known for.
Without doubt, the court decision and the international glee that this TACO story generated would have made Trump look for something to show he’s not a chicken. Undoubtedly, that explains why Wall Street on Friday was negatively focussed on Trump’s most important opponent — China.
Just when the world thought they could hear some Trump chook squawking, out comes the big guy happy to take off the gloves to sock it to Beijing, accusing the Chinese capital of violating its preliminary trade agreement and reigniting fears that the US could enter a drawn-out trade war.
This wasn’t what stock markets wanted to hear but anyone who has to deal with a bully isn’t surprised that the President has returned to a fight that shows him to be a tough guy. All these theatrics, however, that might be good for Donald’s ego are unsettling for investors.
In true Chinese tradition, Xi Jinping’s team came out returning fire, calling out the US for “discriminatory restrictions” in its use of export controls in the chip industry.
These two countries have a history of fighting over chips. CNBC Kif Leswing reminded us that in 2019, “President Trump cut off Huawei’s access to US technology, which forced it to essentially exit the smartphone business for a few years before it could develop its own chips without use of US intellectual property or infrastructure.”
Of course, this would’ve expedited the arrival of China’s chip industry and the Deep Seek AI business, demonstrating the old adage that “necessity is the mother of invention”.
Interestingly, these tit-for-tat barbs between Trump and China has meant a good data drop for the US was largely ignored. Inflation in April, as measured by the Personal Consumption Expenditures reading, fell more than expected, by one measure dropping nearly to the Federal Reserve’s target of a 2% annual rate. Consumer prices rose 2.1%, which was the lowest annual inflation number since September and was lower than the 2.2% predicted by economists, despite tariffs starting in April.
On the local front, despite a lot of the good and bad news above, our S&P/ASX 200 ended up 0.3% on Friday and up 74 points (or 0.89%) for the week to close at 8434.70. Not surprisingly, while the SPI futures say we’ll open down on Monday, it doesn’t look as negative as I was expecting. Ultimately, our market is beholden to what Donald Trump, China and the US legal system decides to do in coming weeks, which makes it very difficult to be excessively optimistic about stocks in the short term. Investing life with Donald was never meant to be easy.
To the stars and strugglers that gained or lost 5%+, there weren’t many as the market continues to climb from already elevated levels.
To the stars…
- HCW Reit was up 6.59% to 0.89%, despite Healthscope’s woes.
- Technology One (TNE) had a good one in a good week for tech stocks, rising 5.25% to $40.88.
And now for the strugglers
- Myer (MYR) slumped 8.5% to $0.70, despite a high-end new game plan from new boss Olivia Wirth.
WHAT I LIKED
1. The court decision that ruled Trump tariffs illegal.
2. The good PCE inflation news.
3. Nvidia’s reporting that was a plus for AI and its potential to help companies’ profitability.
4. Private sector credit surprised on the upside reporting a 0.7% month increase in April, which represented the best result since September 2022. Housing credit remained little changed at 0.5%, in line with the previous trend. Business credit rose 1% a month, the highest pace in six months
WHAT I DIDN’T LIKE
- The court decision to permit an appeal against the ruling that the Trump tariffs were illegal.
- Trump’s China accusations yesterday (Friday).
- The total volume of capex fell by 0.1% for the first quarter of 2025, which was a soft outcome from an upwardly revised lift of 0.2% in the fourth quarter of 2024. A fall in non-mining investment drove the outcome down by 0.9%. Mining investment lifted by 1.9%.
- Aussie nominal retail sales dipped 0.1% in April from March, below consensus forecasts for 0.3% growth, and the first decline in consumer spending this year.
- Inflation at 2.4% was above the 2.3% expected by economists but not a big concern for those praying for rate cuts.
- Total dwelling approvals dropped a further –5.7% in April following a –7.1% decline in March, well below consensus and even Westpac’s bottom-of-the-range forecast.
What happened to sell in May and go away?
After April was a bad month for stocks, May defied the old market saying: “Sell in May and go away, come back on St Leger’s Day”. These are early days in that historically tricky period for stocks i.e. May to September, when markets often head south. This latest Trump play could be bad for stocks, so let’s hope Donald doesn’t try to disprove the TACO theory because it would be bad for our portfolios.
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The Week Ahead
How top stocks fared
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Chart of the Week
Annual trimmed mean CPI rose a touch to 2.8%, against our expectation for an unchanged outcome. Taken together, the report was slightly stronger than expected but should not stop rate cuts.
Quote of the Week
Anyone for TACOs? If you want to know the history of where Trump and TACO comes from, please read this from CNBC. “Trump Always Chickens Out,” or TACO, is a gibe that has ruffled the U.S. president’s feathers, and investors have, by now, seen it happening enough times to know his playbook.
The phrase, coined by a Financial Times columnist, refers to Donald Trump’s pattern of threatening steep tariffs that rattle markets, only to ease or postpone them after a sharp market sell-off, prompting a recovery.
“Trump’s style in negotiating deals is he huffs and he puffs, but he doesn’t blow the house down,” Ed Yardeni, president of Yardeni Research, told CNBC
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