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President Trump is giving the business media plenty to discuss, as he continues to send out letters announcing higher tariff rates starting August 1 if the recipients cannot negotiate better trade terms for the U.S. He has also floated the specter of much higher tariff rates for copper (50%) and pharmaceuticals (200%).
The reaction by the stock market? The market cap-weighted S&P 500 is down a mere 0.9% this week after rallying nearly 30% off its April 7 low coming into the week. The equal-weighted S&P 500 is down only 0.6%. Translation: the stock market isn't overly concerned by these latest developments.
Arguably, they have simply provided an excuse to take some money off the table in an overbought market. The assumption, it seems, is that better terms with trading partners of economic consequence will get worked out and that the tariffs won't be as onerous as advertised from a growth or inflation standpoint.
The market has the benefit of embracing that perspective because the hard data have not corroborated the negative outcomes. In the meantime, the market is soothing itself with the notion that lower policy rates will be forthcoming, either because inflation remains tame or a new Fed Chair nominated by the president will be a proactive rate-cut proponent.
The Wall Street Journal reports that Kevin Hassett, Director of the National Economic Council, is emerging as a frontrunner to be the next Fed Chair, with Treasury Secretary Bessent and former Fed Governor Kevin Warsh in the mix.
In any case, the weakness in the stock market this week is more of a consolidation trade than anything else, and things look poised to get a little less weak at today's open.
Currently, the S&P 500 futures are up 17 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 49 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 162 points and are trading 0.4% above fair value.
Gains in the mega-cap stocks, which include a 0.7% increase for Microsoft (MSFT) after it was upgraded to Outperform from Perform at Oppenheimer, M&A activity that features Merck (MRK) acquiring Verona Pharma (VRNA) for approximately $10 billion, and speculation that the U.S. and EU are close to announcing a framework for a trade deal are among the items providing some underlying support this morning.
After the open, the May Wholesale Inventories report will be released at 10:00 a.m. ET. It won't be a market mover, but the $39 billion 10-yr note reopening at 1:00 p.m. ET and the release of the FOMC Minutes for the June 17-18 meeting at 2:00 p.m. ET could be.
Market participants will be hoping to see better demand at today's auction, versus yesterday's 3-yr note auction, and will focus on the rate cut perspectives expressed by Fed officials at the June meeting.
The 2-yr note yield is down three basis points to 3.89%, and the 10-yr note yield is down two basis points to 4.40%.
