The week ahead: Investors eye tariff deadline as U.S. stocks rally
If that Wednesday deadline passes without an increase in trade tensions, it could prove positive for the markets. Negotiators from more than a dozen major U.S. trading partners are rushing to reach agreements with U.S. President Donald Trump's administration by July 9 to avoid even higher tariffs, and Mr. Trump and his team have kept up the pressure in recent days.
On Wednesday, Mr. Trump announced a deal with Vietnam that he says will impose a lower-than-promised 20-per-cent tariff on many Vietnamese exports. While the administration has teased a forthcoming deal with India, talks with Japan, the sixth-largest U.S. trading partner and closest ally in Asia, appeared to hit roadblocks.
Investors have shifted from panicking about tariffs to relief buying, recently lifting the U.S. stock market back to record highs, with corporate earnings and the U.S. economy holding up better than many had expected through a period of dramatic policy change.
The S&P 500 has risen about 26 per cent from April 8, when stocks bottomed following Mr. Trump's draconian April 2 tariff announcement.
But much of the rally has been driven by retail market participants and corporate share buybacks, even as institutional investors have been more reticent.
Despite the S&P 500 making new highs, equity positioning is far below February levels as investors remain underweight stocks, according to Deutsche Bank estimates.
'This has definitely been a junkier rally, a more speculative rally,' Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.
'In the last week or so, it's been driven a lot more, I think, by retail than it has been by institutions. Institutional positioning is really just average,' she said.
While many factors are keeping investors cautious, including worries about U.S. economic growth and lofty stock market valuations, getting past the tariff deadline without a major escalation in tensions would be one less thing to worry about in the near term, analysts said.
'I think that there may be some threats and saber-rattling, but I don't really think that any of that now poses a major danger to the market,' said Irene Tunkel, chief U.S. equities strategist, BCA Research.
Still, investors don't expect the tariff deadline to put an end to trade tensions for good.
'I don't view it necessarily as a hard deadline,' said Julian McManus, portfolio manager at Janus Henderson Investors.
'The 90-day pause itself was instituted because the markets were falling apart, and I think policymakers needed breathing room and time to try and negotiate these deals or find some kind of off ramp,' he said.
Investors' cautious approach to boosting equity exposure now is reminiscent of their behaviour immediately after the pandemic market drop of March 2020, when allocations to stocks recovered more slowly than major market indexes, Deutsche Bank strategist Parag Thatte, said.
'It does mean that there is room for exposures to keep rising, which is a positive for equities all else equal,' Mr. Thatte said.
After a roller-coaster first half, the S&P 500 is entering a historically strong period. Over the past 20 years, July has been the strongest month for the benchmark index with an average return of 2.5 per cent, according to a Reuters analysis of LSEG data.
Investors will also be keeping an eye on economic data - especially inflation numbers - and second quarter results in coming weeks for clues to the health of the U.S. economy, and the Federal Reserve interest rate outlook.
'We're right at the point where institutions are going to have to decide one way or the other, do they believe the rally or not,' Morgan Stanley's Shalett said.
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Winnipeg Free Press
29 minutes ago
- Winnipeg Free Press
A surprise IRS move on political endorsements leaves faith leaders and experts divided
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Praises to the IRS Robert Jeffress, pastor of a Baptist megachurch in Dallas and a Trump ally, called it 'the right decision.' He said his church's tax-exempt status was threatened because of an IRS investigation into their political endorsements, costing the megachurch hundreds of thousands in legal fees. 'The IRS has no business dictating what can be said from the pulpit,' he said. 'They need to stay the heck out of our churches.' Calvary Church Chino Hills, a Southern California megachurch led by Jack Hibbs, has been endorsing candidates for years, particularly in local elections. Gina Gleason, director of the church's political engagement team, said she hopes the move will encourage smaller churches previously hesitant for fear of triggering an IRS response. 'I'd have thought if the IRS had targeted any church it would've been us,' she said. 'But we got sound legal advice from lawyers and religious liberty organizations that explained we were within our constitutional rights.' For Democrats trying to connect with people of faith, this decision is timely, said Doug Pagitt, pastor and executive director of Vote Common Good, a progressive and evangelical Christian organization. 'Conservative pastors who have been blatantly endorsing candidates regardless of the Johnson Amendment over the years created a disadvantage causing Democrats to step away from faith voters,' he said. 'There was a true imbalance between how many more opportunities there were for Republican voters.' The IRS statement, Pagitt says, also puts an end to the delicate dance pastors and congregations were forced to do. 'You could talk about politics in the church gymnasium, but not in the sanctuary or from the pulpit,' he said. 'Pastors could express political opinions on their personal Facebook page, but not on the church's website. It's just silly.' 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He points out that the word 'endorse' does not appear anywhere in it and said his biggest concern is religion being used as a partisan tool in campaigns. Pagitt at Common Good said not all pastors will seize the opportunity because they might be ministering to a divided congregation or might not be comfortable mixing politics and religion. Chieko Noguchi, spokesperson for the U.S. Conference of Catholic Bishops, said Tuesday that the IRS statement doesn't 'change how the Catholic Church engages in public debate.' Sundays Kevin Rollason's Sunday newsletter honouring and remembering lives well-lived in Manitoba. 'The Church seeks to help Catholics form their conscience in the Gospel so they might discern which candidates and policies would advance the common good,' Noguchi said. 'The Catholic Church maintains its stance of not endorsing or opposing political candidates.' ___ Bharath reported from Los Angeles. ___ AP's religion coverage receives support through the AP's collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content.
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