It's Not The 1990's Gulf War
The misdirection before the start of the weekend gave some of us optimists hope that the US would not soon bomb Iran's nuclear sites. If you did not check the news Saturday you were saved from wondering what might happen to the financial markets until Sunday morning.
This had me going back into my memory banks and I first focused on the summer of 1990. The economy had been weakening in 1989-1990 in reaction to a restrictive monetary policy used to reduce inflation. There were many of other factors (more on the 1990 recession) as it was a global recession that impacted many countries more than the US.
Dow Industrials 1990
The start of the 1990 Gulf War on August 2nd, 1990 is noted on the chart of the Dow Jones Industrials Average. I was also writing market commentary at the time and in early July I noticed bullish signs in the crude oil and gold futures as the Herrick Payoff Index had indicated that the money flow, as well as the volume, was positive. By the time of the invasion, I wondered if Saddam was a buyer in these two markets.
The start and end of a recession are determined with a lag by the National Bureau of Economic Research. For example, the 1990 recession start date was determined in April 1991. The Dow Industrials made its low in October 1990 and by the time the Gulf War ended on February 28, 1992, the Dow was already up 20% from the lows. The bullish sentiment hit its lowest point in October 1990 which correlated with similar low readings during the stock market's decline in 2022 as well as the April 2025 lows.
It is important to understand that I am not currently expecting a similar reaction in 2025 as the state of the economy as well as the supply-demand for crude oil is much different now than it was in 1990. The exchanges are also much different. In July 1990 crude oil rose from about $19 per barrel to over $40 by October.
Crude Oil Weekly
The weekly chart shows the surge in crude oil prices in the past two weeks as it has risen from $64.90 to $77.60 per barrel. The weekly starc+band is at $77.39 with the 38.2% Fibonacci retracement resistance at $83.93. This is calculated from the June 2022 high at $130.50. The 38.2% level is a reasonable upside target for the week ahead with the 50% retracement resistance at $92.82. There is long-term chart resistance at $97.19, line a.
The on-balance volume moved above its WMA last week and has major resistance at line b. One of the indicators that I have found to be the most valuable for commodities is the Herrick Payoff Index developed by the late John Herrick. It uses volume, open interest, and price action to determine money flow. The HPI rose above its WMA at the end of May and surged sharply above the zero line three weeks ago.
Markets
For the week the increased tensions added more uncertainty which always makes the markets nervous. The Dow Jones Transportation Average was up 0.5% followed by a 0.4% gain by the iShares Russell 2000 (IWM). Both the NDX 100 and Dow Jones Industrial Average were unchanged while the S&P 500 was down 0.2%.
On a year-to-date basis, the SPDR Gold Shares (GLD) is up 28.1% as the weekly HPI has indicated positive money flow in the gold futures since October 2023. The Dow Jones Transportation Average is down 7.1%. For the week on the NYSE, there were 1376 advancing issues and 1433 declining issues.
SPY Weekly
The Spyder Trust (SPY) has closed slightly lower for the past two weeks but is still up over 1% for June. The all-time high is at $613.23 (line a) with the yearly R1 at $638.09 and the weekly starc+ band at $645.41. The rising 20-week EMA at $577.26 is not consistent with a significant top. It would take a weekly close below the yearly pivot at $647.94 to turn the yearly pivot trend negative.
The weekly S&P 500 A/D line has formed slightly lower highs over the past six weeks but it is still above its strongly rising WMA. It has already made new highs which does project new highs also for the SPY. The daily S&P 500 A/D is still below its MA as is the NYSE Stocks Only A/D while the NYSE All A/D line is still above its MA. For the last two days of the week, there were more New Highs than New Lows on the NYSE.
Invesco QQQ Trust
The Invesco QQQ Trust (QQQ) closed at $526.67 just 2.5% below the all-time high at $540.81. The yearly R1 is at $572.72 with the weekly starc+ band at $577.01. There is minor support initially in the $512-$516 area with strong support at $502.32 and the rising 20-week EMA.
The NDX100 A/D line made another new high three weeks ago and is well above its rising WMA. The weekly relative performance RS is holding above its WMA and the resistance at line c. This indicates that QQQ is still leading the SPY and should continue to outperform. Over the past three months, QQQ is up 9.9% while SPY is up 5.4%.
Bond Yields
In 1990, the 10-year T-Note yield was in a well-defined long-term downtrend but had consolidated for a few months during the recession but then continued to drop. The current MACD analysis and last week's lower close d9es favor lower yields which is also true for the 2-year yield chart. Both should be favored by US and overseas investors as they look for safety.
The weekly chart of the 30-year T-Bond yield shows the close above 5% and the 18-month resistance, line a. The initial upside targets from the breakout are in the 5.4-5.6% area. The week MACDs will point to higher yields with another close above 5%.
The stock market is likely to be hit with some selling pressure on Monday but I would not expect to see more than a 1-2% pullback unless Iran takes action to block the shipping of oil. We could see 1-2 weeks of sideways to lower trading but the support at the 20-week EMAs should hold.
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"Some consumers have been rushing to make purchases before the tariffs take effect," an executive said on the earnings call. "In the first half of 2025, we achieved approximately 3% growth year over year, higher than the market demand with new product launches and efficient sales operations, continuing to strengthen our market presence." But that pull-forward in demand could signal weakness ahead in the months to come if trade tensions escalate again. "A rise in product costs driven by the 50% tariff on steel and reciprocal tariffs that are set to be applied in the latter half of the year could translate into greater uncertainties for the market price," the executive said. "Additionally, shifts in the US government's trade policies and weakening consumer sentiment cast doubt on the demand outlook for home appliances." This isn't the first time LG has grappled with US protectionist policies. 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The meeting will come as the two sides race to secure a deal ahead of next Friday — Trump's self-imposed deadline for 30% tariffs on EU goods to kick in. On Friday, Trump put the odds of a deal at "50-50." From the report: Bloomberg reports that European Commission President Ursula von der Leyen will meet with President Trump this weekend as he travels to his golf club in Scotland in a bid to secure a trade deal. The meeting will come as the two sides race to secure a deal ahead of next Friday — Trump's self-imposed deadline for 30% tariffs on EU goods to kick in. On Friday, Trump put the odds of a deal at "50-50." From the report: Trump: 'We haven't really had a lot of luck with Canada' President Trump on Friday expressed pessimism on US trade negotiations with Canada, suggesting he may simply impose threatened 35% tariffs on Canadian goods not covered by the existing US-Canada-Mexico trade agreement. "We haven't really had a lot of luck with Canada. I think Canada could be one where there's just a tariff, not really a negotiation," he said. More from Reuters: President Trump on Friday expressed pessimism on US trade negotiations with Canada, suggesting he may simply impose threatened 35% tariffs on Canadian goods not covered by the existing US-Canada-Mexico trade agreement. "We haven't really had a lot of luck with Canada. I think Canada could be one where there's just a tariff, not really a negotiation," he said. More from Reuters: Boston Beer Company says strong profits helped brewer absorb tariff costs The Boston Beer Company (SAM) continues to feel the effects of President Trump's tariffs, but a strong quarter of sales and profit is helping the Samuel Adams brewer absorb some of those cost increases. Boston Beer expects tariffs to add about $15 million to $20 million in costs for the full year. Previously, it modeled tariff costs of $20 million to $30 million. Expect the company to raise prices by 1% to 2% to offset some of the costs as well, executives said. Boston Beer did see tariffs negatively affect its gross margin toward the end of the second quarter, but it benefited from improved brewery efficiencies. For the second quarter, the company reported profits of $5.45 per share on revenue of $625 million, versus estimates for earnings of $4.00 per share on $588 million, according to S&P Global Market Intelligence. "Right now, I think we're very happy with the performance," Boston Beer CEO Michael Spillane said on the earnings call. "Not only that, but that's allowed us to offset some of the tariffs that we've seen so far." The Boston Beer Company (SAM) continues to feel the effects of President Trump's tariffs, but a strong quarter of sales and profit is helping the Samuel Adams brewer absorb some of those cost increases. Boston Beer expects tariffs to add about $15 million to $20 million in costs for the full year. Previously, it modeled tariff costs of $20 million to $30 million. Expect the company to raise prices by 1% to 2% to offset some of the costs as well, executives said. Boston Beer did see tariffs negatively affect its gross margin toward the end of the second quarter, but it benefited from improved brewery efficiencies. For the second quarter, the company reported profits of $5.45 per share on revenue of $625 million, versus estimates for earnings of $4.00 per share on $588 million, according to S&P Global Market Intelligence. "Right now, I think we're very happy with the performance," Boston Beer CEO Michael Spillane said on the earnings call. "Not only that, but that's allowed us to offset some of the tariffs that we've seen so far." Some headlines from Trump on tariffs this morning Via Bloomberg: Via Bloomberg: Trump: US will sell 'so much' beef to Australia President Trump said on Thursday that the US will sell "so much" beef to Australia, following Canberra relaxing import restrictions. Trump added that other countries who had refused US beef products were on notice. Reuters reports: Read more here. President Trump said on Thursday that the US will sell "so much" beef to Australia, following Canberra relaxing import restrictions. Trump added that other countries who had refused US beef products were on notice. Reuters reports: Read more here. World's No. 3 automaker Kia takes $570M tariff hit in Q2 Reuters reports: Read more here. Reuters reports: Read more here. Puma shares dive after warning of full-year loss, US tariff impact Puma ( shares fell 17% on Friday after the sportswear brand said that it now expects an annual loss due to a decline in sales and US tariffs denting profit. Reuters reports: Read more here. Puma ( shares fell 17% on Friday after the sportswear brand said that it now expects an annual loss due to a decline in sales and US tariffs denting profit. Reuters reports: Read more here. LG Energy Solution warns of slowing EV battery demand due to U.S. tariffs, policy headwinds Reuters reports: South Korean battery firm LG Energy ( Solution warned on Friday of a further slowdown in demand by early next year due to U.S. tariffs and policy uncertainties after it posted a quarterly profit jump. Its major customers Tesla (TSLA) and General Motors (GM) warned of fallout from U.S. tariffs and legislation that will end federal subsidies for EV purchases on September 30. "US tariffs and an early end to EV subsidies will put a burden on automakers, potentially leading to vehicle price increases and a slowdown in EV growth in North America," CFO Lee Chang-sil said during a conference call. Read more here. Reuters reports: South Korean battery firm LG Energy ( Solution warned on Friday of a further slowdown in demand by early next year due to U.S. tariffs and policy uncertainties after it posted a quarterly profit jump. Its major customers Tesla (TSLA) and General Motors (GM) warned of fallout from U.S. tariffs and legislation that will end federal subsidies for EV purchases on September 30. "US tariffs and an early end to EV subsidies will put a burden on automakers, potentially leading to vehicle price increases and a slowdown in EV growth in North America," CFO Lee Chang-sil said during a conference call. Read more here. Japan, US differ on how trade-deal profits will be split Japan said Friday that profits from the $550 billion investment deal with the US will be shared based on how much each side contributes. A government official suggested the US will also put in significant funds, but details of the scheme remain unclear. The White House had announced earlier in the week that the US would retain 90% of the profits from the $550 billion US-bound investment and loans that Japan would exchange in return for reduced tariffs on auto and other exports to the US. This would mean that returns would be split 10% for Japan and 90% for the US, according to the White House official, and that it would be "based on the respective levels of contribution and risk borne by each side." Bloomberg News reports: Read more here. Japan said Friday that profits from the $550 billion investment deal with the US will be shared based on how much each side contributes. A government official suggested the US will also put in significant funds, but details of the scheme remain unclear. The White House had announced earlier in the week that the US would retain 90% of the profits from the $550 billion US-bound investment and loans that Japan would exchange in return for reduced tariffs on auto and other exports to the US. This would mean that returns would be split 10% for Japan and 90% for the US, according to the White House official, and that it would be "based on the respective levels of contribution and risk borne by each side." Bloomberg News reports: Read more here. US business activity rises; tariffs fuel inflation concerns US business activity rose in July, but companies increased the prices for goods and services, supporting the view from economists that inflation will accelerate in the second half of 2025 and it will mainly be due to tariffs on imports. Reuters reports: Read more here. US business activity rose in July, but companies increased the prices for goods and services, supporting the view from economists that inflation will accelerate in the second half of 2025 and it will mainly be due to tariffs on imports. Reuters reports: Read more here. It sounds like Trump now has a new minimum tariff rate: 15% President Trump set a new rhetorical floor for tariffs on Wednesday night in comments in a shift that raises the president's baseline rate from 10%. Yahoo Finance's Ben Werschkul writes: Read more here. President Trump set a new rhetorical floor for tariffs on Wednesday night in comments in a shift that raises the president's baseline rate from 10%. Yahoo Finance's Ben Werschkul writes: Read more here. Keurig Dr. Pepper brewer sales volume drops 22%, CEO says tariff impacts 'will become prominent' Keurig Dr. Pepper CEO Tim Cofer said that tariffs are putting additional pressure on the company in an earnings call Thursday, especially when it comes to its coffee business, which KDP expects to be "subdued" for the remainder of the year. "Commodity inflation will build as we roll into the back half and we roll into our higher cost hedges on green coffee," Cofer said. "The tariff impacts will become prominent. And we all know that tariff situation is a bit fluid." Keurig is one of the biggest coffee importers in the US, along with Starbucks (SBUX) and Nestle (NSRGY). The US sources most of its coffee from Brazil, which is set to face 50% tariffs on its products on Aug. 1, and Colombia, which faces a tariff rate of 10%. In Keurig's coffee business, appliance volume decreased 22.6% during the quarter, reflecting impacts of retailer inventory management, and K-Cup pod volume decreased 3.7%, reflecting category elasticity in response to price increases, the company reported. "Our retail partners will likely continue to manage their inventory levels tightly, in particular on brewers," Cofer commented. "And then finally, you know we did a round of pricing at the beginning of the year. We've announced another round of pricing that will take effect next month, and we'll need to closely monitor how that elasticity evolves." Read more about Keurig earnings here. Keurig Dr. Pepper CEO Tim Cofer said that tariffs are putting additional pressure on the company in an earnings call Thursday, especially when it comes to its coffee business, which KDP expects to be "subdued" for the remainder of the year. "Commodity inflation will build as we roll into the back half and we roll into our higher cost hedges on green coffee," Cofer said. "The tariff impacts will become prominent. And we all know that tariff situation is a bit fluid." Keurig is one of the biggest coffee importers in the US, along with Starbucks (SBUX) and Nestle (NSRGY). The US sources most of its coffee from Brazil, which is set to face 50% tariffs on its products on Aug. 1, and Colombia, which faces a tariff rate of 10%. In Keurig's coffee business, appliance volume decreased 22.6% during the quarter, reflecting impacts of retailer inventory management, and K-Cup pod volume decreased 3.7%, reflecting category elasticity in response to price increases, the company reported. "Our retail partners will likely continue to manage their inventory levels tightly, in particular on brewers," Cofer commented. "And then finally, you know we did a round of pricing at the beginning of the year. We've announced another round of pricing that will take effect next month, and we'll need to closely monitor how that elasticity evolves." Read more about Keurig earnings here. The EU's Trump insurance As my colleague detailed below, EU member states voted to impose tariffs on over $100 billion of US goods from Aug. 7. The Financial Times reported that this move that allows the bloc to impose the levies quickly at any point in the future should its trade relationship with the US take a turn for the worse. From the report: Read more here (subscription required). As my colleague detailed below, EU member states voted to impose tariffs on over $100 billion of US goods from Aug. 7. The Financial Times reported that this move that allows the bloc to impose the levies quickly at any point in the future should its trade relationship with the US take a turn for the worse. From the report: Read more here (subscription required). Europe approves $100B-plus tariff backup plan A report in the Wall Street Journal on Thursday said that the European Union has now approved its retaliatory tariff package on US goods that could start in August if no trade agreement is reached. The EU announced on Wednesday that it will hit the US with 30% tariffs on over $100 billion worth of goods in the event that no deal is made and if President Trump decides to follow through with his threat to impose that rate on most of the bloc's exports after Aug. 1. The US exports, which would include goods such as Boeing (BA) aircraft, US-made cars and bourbon whiskey would all face heavy tariffs that match Trump's 30% threat. The approval of the package comes despite the growing optimism that the US and EU will reach a deal that would put baseline tariffs on the bloc at 15%, matching the level the US applied to Japan. The EU is keen to reach a deal with the US but as a cautionary measure has approved 30% tariffs if a deal is not made. A report in the Wall Street Journal on Thursday said that the European Union has now approved its retaliatory tariff package on US goods that could start in August if no trade agreement is reached. The EU announced on Wednesday that it will hit the US with 30% tariffs on over $100 billion worth of goods in the event that no deal is made and if President Trump decides to follow through with his threat to impose that rate on most of the bloc's exports after Aug. 1. The US exports, which would include goods such as Boeing (BA) aircraft, US-made cars and bourbon whiskey would all face heavy tariffs that match Trump's 30% threat. The approval of the package comes despite the growing optimism that the US and EU will reach a deal that would put baseline tariffs on the bloc at 15%, matching the level the US applied to Japan. The EU is keen to reach a deal with the US but as a cautionary measure has approved 30% tariffs if a deal is not made. Trump tariffs wreaking havoc in Brazil's citrus belt Reuters reports: Read more here. Reuters reports: Read more here.
