While I dare not point the finger of blame for all this Trump-related uncertainty, the President’s antics are causing market issues, so how can positivity be sustained?
Despite the ominous black cloud of President Donald Trump and his tariff letters, our stock market resisted giving into negative speculation and was slightly positive after the brokers’ lunch break. But the question is: how can positivity be sustained with these tariff escalations understandably increasing uncertainty?
However, it’s not all about Trump. US earnings season takes centre stage although it’s still more of a “off Broadway” production compared to the tariff blockbuster on Wall Street.
This is how CNBC’s Sarah Min saw the show-and-tell of major US companies: “The second quarter reporting season comes at a pivotal point for the stock market, with the S&P 500 and Nasdaq Composite trading at all-time highs last week, even after an onslaught of bad news regarding higher tariffs, a ballooning fiscal deficit, softening growth and elevated geopolitical risk”.
Helping positivity is a big expectation that Artificial Intelligence (AI) will be important to the narrative that helps stocks head higher. “We think corporate earnings are going to be stronger than what the market is actually looking for, and that can actually boost stock prices,” Mary Ann Bartels, chief investment strategist at Sanctuary Wealth Management, said on CNBC TV. “We’re well aware that the valuations are high, but if our analysis on earnings is correct, maybe the market is not as expensive as people anticipate.”
Bartels was formerly head strategist at Bank of America so she shouldn’t easily be dismissed.
What will be watched carefully are the outlook statements that will have to explain how the companies will deal with the headwinds of tariffs and possible related inflation, against the tailwinds of AI and lower interest rates.
One surprise negative that could turn out to be a positive is the impact of the tariffs on the USA’s deficit problem. Data last week showed that the Government posted a surplus in June as tariffs gave an extra bump to a sharp increase in receipts.
Customs duties totalled about $27 billion for the month, up from $23 billion in May and 301% higher than June 2024. On an annual basis, tariff collections have totalled $113 billion, or 86% more than a year ago.
While that’s the range of fundamental drivers of stocks, which you’d have to say remain in the “hard-to-tell” basket, what are the charts telling us?
S&P500:
Head of Equity Technical Research at Bank of America, Paul Ciana, told CNBC’s Closing Bell program that a head-and-shoulders pattern has emerged that points to an upside for stocks. (Check out the chart above.) The S&P 500 is at 6259 and Ciana argues on a mean reversion basis, 6500 is a believable target from here.
But wait there’s more. Ciana doesn’t rule out a jump to 7300, given what he’s seeing but it’s not his base case. For those who might be worried about the outlook for stocks, he says 2025 looks a lot like 2018, but in reverse.
In that year, there was a small correction earlier in 2018 but there was a bounce back ahead of a bigger correction towards the end of the year. He says we’ve had that big correction, thanks to Trump’s tariffs and Liberation Day, so he’s tipping the next pullback will be less scary.
Putting all this into context, I can see that Trump taking on the EU, Japan and South Korea could unsettle the stock market and August could be the month that takes a lot of Trump’s heat.
If there are backdowns and more reasonable agreements, which Trump knows he has to come up with or else the stock and bond markets would let him have it, then remaining long the share market makes sense.
This week we’ll see a long list of US economic data. The market will be looking to see that inflation and a recession aren’t on the horizon.
As I think these could be bigger issues for 2026 and 2027, the main game is Trump and his tariffs. AI and the likelihood of a couple of rate cuts will help Wall Street. Of course, what happens there will be important for our market.
I hate to admit this, and I hate investing with this in mind, but the main maker or breaker for stocks will be Donald J. Trump.