Local stocks were trumped by the US President’s tariff threat, which above all is creating uncertainty. When that spook factor hits Wall Street and other global stock markets, then the ‘sell first asked questions later’ play dominates. Our market gave up 1.49% (or 123.80 points) last week, while over the five days Thursday to Thursday in the US, the Nasdaq slumped 7.31% and the S&P 500 lost a big 4.13%. And that’s despite the fact that the US reporting season has been pretty good.

This is how AMP’s Shane Oliver summed it up: “US December quarter earnings reports were strong, but tailed off at the end and expectations have softened. Around 97% of S&P 500 companies have now reported, with 74.3% beating earnings expectations which is below the norm of 76%.

“Consensus earnings growth expectations for the quarter have risen to 13% year-on-year though, well up from 8.4% year-on-year at the start of the reporting season. Financials and tech led as expected. Key AI chip maker Nvidia did not beat expectations as much as hoped, so its shares plunged. And earnings growth expectations are being revised down.”

However, there’s more issues at play, as markets are nonplussed about what President Trump will serve up with his plaything called tariffs. And let me emphasise that he is changing his mind on nearly a daily basis and that’s the kind of thing financial markets ‘hate’.

This week started with tariffs on China, Mexico and Canada, which were to start on April 4, but then on Thursday we learnt they now will start on March 2. And before the ink dried on that executive order, we learnt that there could be a general tariff on everyone, including us!

This was the Friday afternoon headline in the AFR: Blow to Labor’s hopes as US seeks ‘across the world’ tariffs.

US Commerce Secretary Howard Lutnick says America is being “treated like crap by everyone” and the President wants a globally consistent tariff regime.

This could be bad news for the Albanese Government, our economy and the stock market, but because of the lack of clarity about the future in a Trump-led world, we just don’t know how nervous we should be about being long stocks.

And it’s not just the US President unnerving stock players, the US has had a run of data that has been on the weak side while inflation readings have been on the high side. Once again, this keeps Wall Street at sixes and sevens, wondering if possibly a recession is coming, and whether inflation will remain sticky and high.

Throw in profit-taking selling on stocks that have surged, such as the Magnificent 7 in the US (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla) and locally our top 20 biggies such as the banks, JB Hi-Fi, Wesfarmers and the like, and you’ve got good reason for market indexes to be falling.

On February 13, the CBA was $166.72. Now it’s $156.74, while NAB is off 12.06% over the past month. This is all explainable in terms of profit-taking and the rotation into other stocks other than the great performers in the top 20 over the past few years.

However, Donald Trump has put a spoke in the rotating wheel of the market with his tariff talk and that’s why we are seeing thrills and spills for stock prices right now. So, how worried we should be?

Tom Lee, head of research at Fundstrat Global, thinks Trump’s tariffs are nothing more than a “flesh wound” for stocks. “A close watch on momentum, policy headlines, and Nvidia’s earnings will be key in determining if this pullback proves to be only a ‘flesh wound’ before markets stabilise,” Lee said on Tuesday in his daily market note. “But the bigger message is that we expect investors to buy the dip. We believe this should be the key takeaway this week. And secondarily, that the market participation is broadening beyond MAG7.”

Lee often goes for the bigger positives when short-term negatives grab market headlines. He points to:

1.The “January Barometer” that says a strong first five trading days of the year portends gains ahead.

2. The latest sell-off has taken “froth” out of the market.
3. He likes market leadership in cyclical stocks, which gives him optimism about stock prices going forward.
4. Good inflation news in a weaker-than-expected economy will bring on interest rate cuts that stocks will react positively to over 2025.

By the way, Lee isn’t the only doubter when it comes to this sell-off, with JPMorgan’s global market strategist Kerry Craig, arguing the market has overreacted to tariff anxiety.

CNBC Nicola Blackburn reported on Craig’s view that “US President Donald Trump’s decision to impose a further 10 per cent tariff on Chinese imports may not hold and could have a less material impact on Australia than the market fears.” He added: “I think it’s quite hard to digest exactly what’s going to stick — even if we take the view that there will be further tariffs in some form [on China], the difficulty is trying to assess the magnitude.”

He also argues that there is ‘a slew of other factors that could have a material impact on the trade outlook.” He singled out China’s National People’s Congress convening on March 5 – one day after the higher tariff is set to come into effect. “There’s nothing to say we might not see an announcement around what China is going to do in terms of fiscal stimulus. That could support international markets and certainly lead to some of this reprieve for the miners [in Australia],” he told CNBC.

I’m not buying yet but I suspect this sell-off will be a buying opportunity for the brave.

This puts the PCE index for inflation (the Fed’s favourite inflation measure) in the spotlight for stocks going forward. So, how did this important data drop fare overnight?

The January PCE gauge of inflation fell slightly in January increasing by 0.3% for the month and 2.5% on an annual basis. Meanwhile, the Core PCE, which excludes volatile food and energy prices, also rose 0.3% for the month and 2.6% year-over-year.

These numbers came in as expected and indicate that inflation is heading in the right direction. This should be a plus for stocks on Monday, provided Trump tariffs don’t rattle confidence more than market players can bare.

On the local front, let’s now look at the stars and strugglers that gained or lost 5% or more this week:

Reach for the stars…

1. Pexa at last put on 7.23% to $12.31.
2. EVT got its report right, up 20.46% to $14.60.
3. Eagers Auto went into the fast lane up 18.03% to $14.99.
4. Medibank was healthy, up 9.3% to $4.35.
5. Challenger won fans, up 5.24% to $5.82.
6. Qantas took off, rising 6.85% to $9.52 on dividend for the first time in a while.
7. Woodside powered up 7.65% to $24.77.
8. Pointsbet surged 26.97% to $1.13 on two potential buyers.
9. APA was piping hot, up 11.82% to $7.38.
10. Zip zipped 5.13% higher to $2.46.

Now for the strugglers…

1. Star slumped 21.43% to $0.11 as it looked for a rescue.
2. Johns Lyng Group Ltd was smashed, off 33% to $2.55.
3. Siteminder gave up a big 20.6% to $4.96 in a bad week for travel.
4. Flight Centre flew low, down 7.96% to $16.18
5. IDP Ed hasn’t learnt its lesson, falling 18.2% to $10.05.
6. Perpetual performed poorly and lost 15.05% to $19.81.
7. Centuria Capital fell 6.84% to $1.64.
8. Iress missed on the numbers, down 5.46% to $7.97.
9. Wisetech fell 8.07% to $89.50 on unwise Richard White antics.
10. Worley rose 8.10% to $15.22
11. Domino’s keep giving investors indigestion falling 11.69% to $28.33.

What I liked

1. Australian inflation with monthly inflation holding at 2.5% year-on-year in January.
2. Falling yields on bonds which are good for lower interest rates.
3. Underlying inflation as measured by the trimmed mean ticked up but only to 2.8% year-on-year — it’s in the 2% to 3% band.

What I didn’t like

1. Trump’s tariff talk.
2. Growth concerns in the US.
3. On local company reporting, beats came in just below misses – with 38% of results surprising consensus earnings expectations on the upside, which is just below the norm of 40%, versus 39% surprising on the downside, which is less than the norm of 41%. It was OK but not inspiring.
4. Election speculation, which is seldom great for stocks. Historically there is some evidence that Australian shares track sideways in the run up to elections and then see a relief rally once it’s over.
5. December quarter GDP growth in the US was confirmed at 2.3% annualised, which isn’t great.
6. Locally, December quarter construction activity was softer than expected.
7. Business investment was also softer than expected.

A big week for data and stock prices.

While there is a raft of important economic data, I especially want to see:

1. In Australia, GDP quarter data on Wednesday, which is likely to show that the economy remained subdued in the December quarter at 0.3% quarter on quarter or 1% year-on-year. If it’s lower, the case for an April cut will become stronger.
2. In the US, the jobs report will have implications for growth and inflation, then rate cuts and then stock prices.
3. The EU is expected to cut rates again on Thursday.
4. The Chinese Purchasing Manager numbers. We need to see a Chinese economic recovery in 2025, with tariffs likely to hurt global growth.

P.S. I’m flying overnight from Hanoi and the market closes while I’m in the clouds, so I won’t know how Wall Street copped this good PCE.

“Underlying inflation as measured by the trimmed mean tickedup but only to 2.8%yoy,” Shane Oliver of AMP reported. “However, the downtrend in the monthly trimmed mean points to a further fall in quarterly trimmed mean to around 2.9%yoy or less this quarter. So back in the target range!”

And this means more rate cuts are on the cards!