Next Fed chair pick likely to move market less, says Jefferies' Zervos
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Miami Herald
2 hours ago
- Miami Herald
Why did stocks tumble this week?
The stock market had a tough week, with the S&P 500 and tech-stock-heavy Nasdaq retreating sharply on Thursday and Friday following a batch of concerning news on inflation, jobs, and tariffs. The S&P 500 fell 2.7% from an early-week high while the Nasdaq lost 3.9% of its value from its peak on Thursday. Here's why stocks retreated, and what could happen next. The stock market sell-off began in earnest following the Federal Reserve's controversial decision to keep interest rates at 4.25% to 4.5%. President Trump has advocated for Fed Chairman Jerome Powell to cut rates aggressively, recommending a 3% reduction. Related: Goldman Sachs revamps Fed interest rate cut forecast for 2025 Lower interest rates support stock prices because they increase household and business spending, fueling revenue and profit growth. Powell's reluctance to lower rates remains a headwind for stocks this year. Powell cited risks of tariffs driving inflation higher later this year and a "solid" economy for the decision to leave rates unchanged. Many viewed his hawkish tone during his press conference as an indication that rates may not get cut at the next meeting in September either. The decision drew the ire of President Donald Trump, who has previously called Chairman Powell "Mr. Too Late" and a "numbskull" for not already reducing interest rates. The President renewed his calls for Powell to resign following the Fed meeting. Despite White House pressure, the Fed's dual mandate targets low unemployment and inflation, which dictates its decisions on monetary policy. The Fed's mandate purposefully excludes political jawboning. Unfortunately, the Fed's dual goals are contradictory. While Fed rate cuts boost economic activity and lower unemployment, they increase inflation. The opposite is true when it raises rates. This dynamic often means that the Fed hesitates for fear of causing more economic problems than it solves. Unfortunately, that often means that the Fed falls behind the curve when setting interest rates at appropriate levels, forcing it to act more aggressively than it might otherwise because the economy has gotten too hot or cold. That chasing can lead to greater uncertainty, causing stock market volatility. The stock market's sell-off earlier in 2025 was primarily due to higher-than-expected import tariffs and the risk that they would boost inflation, zapping economic activity. Those worries fell when President Trump paused many tariffs on April 9, kickstarting a massive stock market rally that sent the S&P 500 and Nasdaq up over 28% and 38%, respectively. More Layoffs: Intel's recent layoffs take an unexpected turnWalmart makes more cuts customers won't likeLooking for a job? Job ads probably won't help you find one However, now that President Trump's tariff pause expired on August 1, he's announced new tariffs ranging from 10% to 41%, including a 35% tariff on Canada, up from 25%. Canada was our third-largest trading partner in 2024. The higher tariffs are problematic, given that they occur even as the impact of tariffs left in place earlier this year seems to be increasing inflation. The Personal Consumption Expenditures index showed inflation increased to 2.6% in June, up from 2.4% in May and 2.2% in April. The higher and faster inflation rises, the more likely business and household spending will shrink, dinging corporate revenue and earnings growth at publicly traded companies. The stock market was also hit by disappointing jobs data. Stocks perform best when the economy creates more jobs and wages grow, creating extra discretionary income. Related: Jobs report shocker resets Fed interest rate cut bets On Friday, the Bureau of Labor Statistics said the US economy only added 73,000 jobs in July, far fewer than the 100,000 expected and 147,000 in June. As a result, the unemployment rate increased to 4.24%, its highest level this cycle. Meanwhile, the Job Openings and Labor Turnover Survey (JOLTS) showed the number of open jobs fell to 7.4 million in June from 7.7 million in May. In case that wasn't concerning enough, Challenger, Gray & Christmas reported that US employers announced 62,075 layoffs in July, up 29% from June and 140% year over year. Stocks have had a remarkable rally, and it's not shocking that they might take a break. August is a notoriously weak month for stock market returns, and recent gains have lifted the S&P 500's forward price-to-earnings ratio, a key valuation measure, to lofty levels. According to FactSet, the S&P 500's forward P/E ratio was 22.4 on Friday, near the highs set in February before tariff announcements caused a sell-off, and up from about 19 in April, when stocks were near the lows. With valuation arguably rich and inflation and jobs uncertainty growing, stocks could experience more volatility than usual this month. Long-term investors are likely best off simply recognizing that pullbacks are common. According to Capital Group, a money manager with $2.2 trillion under management, the S&P 500 retreats 5% to 10% about once per year. Short-term investors may want to take a different approach, locking in recent gains and looking for lower entry points in the coming weeks. Related: Morgan Stanley resets S&P 500 target for 2026 The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
NBC News
2 hours ago
- NBC News
CEOs globally brace for tariff turmoil with a new game plan
Trade tensions are rising, forcing top executives to rewrite the rulebook on how their companies operate, where they invest and what customers buy. In interviews with CNBC this earnings season, CEOs across industries — from aluminum and aerospace to chocolate, banking, telecoms, and energy — sent a clear message: tariffs are no longer just a political tactic. As trade rules grow more uncertain and tariffs resurface in policy discussions, business leaders say they're rethinking everything from where factories are located to how products are priced. The old 'just in time' model is giving way to something more cautious: make goods closer to the buyer, ask for exemptions where possible, and stay alert to shifting consumer habits. This earnings season has been marked by currency swings, inflation, and political uncertainty. And in that environment, tariffs are no longer background noise. They're front and center in how companies are managing risk. For many in the C-suite, the threat isn't just about short-term costs — it's about staying competitive for the long haul. Build local, think political 'We are concerned about the competitiveness of aluminum compared to other materials,' Hydro Chief Financial Officer Trond Olaf Christophersen told CNBC earlier this week. The company is already passing U.S. tariff costs onto customers. But the deeper worry is how, 'some customers in packaging are already testing steel and plastic alternatives. That's the long game we're watching.' For Christophersen, it's not just a quarterly issue — it's a warning sign. And Hydro's concern reflects a broader shift: tariffs are speeding up lasting changes in how companies do business. One of the most common responses is moving production closer to customers. Ericsson CEO Börje Ekholm told CNBC the company's North American factory, opened in 2020, was a forward-looking move. 'We've had that 'Made in America' stamp for some time,' he said. The facility now helps protect the company from shifting global politics. Volvo Cars CEO Håkan Samuelsson is also focused on the U.S. 'We want to fill our factory in South Carolina,' he told CNBC, noting that the company is breaking operations into more independent regions so local teams can respond quickly to new trade policies. Pharma giant AstraZeneca is also pivoting its footprint, rapidly shifting manufacturing to the U.S. and planning a $50 billion investment in local operations. 'We have lots of reasons to be here,' CEO Pascal Soriot said on the company's earnings call. For others, localization is as much about sovereignty as it is about logistics. 'We are building data centers for American hyperscalers in Europe, but also for Europeans in the U.S. It's a conscious decoupling,' Skanska CEO Anders Danielsson told CNBC. 'Sovereign tech is a real priority.' Not every company can shift where things are made. Some are relying on diplomacy. Rolls-Royce CFO Helen McCabe told CNBC the aerospace firm worked with U.K. and U.S. governments to win exemptions for key parts. 'It's not just about tariffs,' she said. 'It's about aligning our industrial footprint to minimize any friction.' That kind of behind-the-scenes outreach points to a bigger change: trade policy has become a key part of business planning. More companies are factoring in government relations and political risk when making decisions. Price hikes, policy risk and volatility Even the most proactive companies can't prepare for everything. Some are eating the higher costs. Others are raising prices — carefully. Lindt & Sprüngli, the premium chocolate maker, raised prices by 15.8% this year to offset soaring cocoa costs, driven partly by export restrictions in West Africa. 'We saw only a 4.6% decline in volume mix,' CEO Adalbert Lechner told CNBC. But he admitted that U.S. consumers are becoming more price-sensitive. Givaudan CEO Gilles Andrier shared a similar view. 'Some of our natural ingredients come from Africa and Latin America,' he told CNBC. 'So we're exposed to some tariffs there.' Even companies with local factories can't avoid all trade impacts when raw materials come from abroad. For companies tied to commodities, the trade duties are just one piece of a bigger puzzle: unpredictability. 'The tricky thing was, it was non-fundamentals-based volatility,' Shell CEO Wael Sawan told CNBC, describing recent swings in the oil market. 'This wasn't a change to physical commodity flows. This was really sort of paper-induced volatility.' That, he said, makes it harder to plan investments or manage price risk. Even in banking, where the direct impact of tariffs might seem small, the consequences are showing up. 'When you price risk now, you can't just look at credit or liquidity. You have to model policy unpredictability,' UniCredit CEO Andrea Orcel told CNBC. That includes trade tensions, regulatory surprises, and election-related gridlock. This quarter makes one thing clear: policy is now a core business risk, not background noise. With elections ahead and industrial policy shifting, companies are localizing, diversifying, lobbying, and repricing faster than ever. Tariffs aren't just a cost — they're reshaping industries. When customers trade aluminum for steel or chocolate for cheaper treats, the threat isn't just margins. It's market share. So yes, leaders are building closer to home, pricing smarter, negotiating harder as they scramble to stay ahead of the next curveball.
UPI
4 hours ago
- UPI
Federal Reserve governor Kugler resigns, creating vacancy for Trump
Adriana Kugler announced she will be leaving as Federal Reserve governor on Aug. 8. Photo by Federal Reserve Aug. 2 (UPI) -- One of the seven members of the Federal Reserve Board of Governors, Adriana Kugler, announced she is stepping down next week, creating an opening for President Donald Trump to fill. Her term was set to expire in January but Kugler said Friday she will depart in seven days. President Joe Biden appointed Kugler, a 55-year-old labor economist, in September 2023. Governors' terms are for 14 years, and Kugler filled an opening. "The Federal Reserve does important work to help foster a healthy economy and it has been a privilege to work towards that goal on behalf of all Americans for nearly two years," Kugler said in her resignation letter to Trump. "I am proud to have tackled this role with integrity, a strong commitment to serving the public, and with a data-driven approach strongly based on my expertise in labor markets and inflation." Kugler said she plans to return to teaching public policy at Georgetown University in the fall. She was a vice provost for faculty at Georgetown and earned her Ph.D. in economics at the University of California at Berkeley. "I am especially honored to have served during a critical time in achieving our dual mandate of bringing down prices and keeping a strong and resilient labor market," she wrote in the letter. Kugler did not vote on Wednesday when the central bank's Federal Open Market Committee kept the benchmark interest rate unchanged at a range of 4.25% to 4.5% for a fifth consecutive meeting. Two of the 11 committee members who did vote dissented, backing Trump's desire to lower rates. The 12-member committee includes the seven governors, the president of the Federal Reserve Bank of New York and four remaining 11 Reserve Bank presidents who serve one-year terms on a rotating basis. "We just found out that I have an open spot on the Federal Reserve Board. I'm very happy about that," Trump said late Friday before boarding Marine One. He later posted on Truth Social that Fed Chairman Jerome Powell "should resign, just like Adriana Kugler, a Biden Appointee, resigned. She knew he was doing the wrong thing on Interest Rates. He should resign, also!" The replacement may ultimately replace Powell, whose term ends in May, though he can remain as a governor until 2028. The president appoints each of the board members and designates one to serve as chair for four years. Trump appointed Powell during his first presidency in 2018. Biden appointed him to another term as chairman. "Trump's influence on interest rates will now be felt earlier and more strongly," Derek Tang, an economist at LHMeyer, an economic consulting firm, told The Washington Post. Contenders to lead the Fed are National Economic Council Director Kevin Hassett, former Fed governor Kevin Warsh and Fed governor Christopher Waller, each with distinct strengths, The Washington Post reported. Trump has said he wants Scott Bessent to remain as Treasury secretary. Trump has sought to replace Powell, calling him on Truth Social "a stubborn MORON" and "too late" on lowering interest rates. But he can only be fired "for cause," such as malfeasance, neglect of duty or inefficiency, rather than disagreeing with policies. Experts say his removal could disrupt the financial markets.
