Key Takeaways
- Markets rallied strongly, with S&P posting a nine-day streak
- Tariffs and Buffett’s exit are driving investor focus this week
- Volatility remains elevated; Fed unlikely to cut rates soon
The S&P 500 gained 1.5% on Friday and 3% for the week, capping a nine-day win streak that has seen the market rise 10% from its April lows. The Nasdaq Composite ended the week higher by 3.4%. The Russell 2000 added 3% for the week and the Dow Jones Industrial Average also added 3% last week.
We’re about three-quarters of the way through earnings season at this point and the numbers have thus far been impressive. According to FactSet, earnings growth is tracking at 12.8%. With the recent rebound in equity prices, the 12-month forward-looking P/E ratio is 20.2.
This will be another heavy week for earnings with both Ford and Palantir reporting Monday, after the close. I think many investors are interested in what Ford has to say about its outlook in light of tariffs. Then before the open Tuesday morning, Archer-Daniels-Midland is scheduled to announce. This is another one that will be interesting and I’m sure many are eager to hear about the impact of tariffs on its outlook.
Perhaps the biggest news of the weekend came out of Nebraska. On Saturday, legendary investor Warren Buffett announced he will step down as CEO of Berkshire Hathaway, a company he has led for 60 years. The news, while not a total surprise given he is 94 years old, was still somewhat shocking to those in attendance. Buffett has been an American icon and arguably as influential as people like J.P. Morgan or Henry Morgenthau. Buffett announced Greg Abel will replace him, but Buffett will remain on as Chairman of the Board.
On Sunday, President Donald Trump announced a new set of tariffs that will be placed on any foreign-made movies coming into the United States. Those tariffs will be 100%. Shares of media companies are lower with Netflix down over 5% in premarket. This will make what Disney has to say, when it announces earnings on Wednesday, much more interesting.
The impact of tariffs has yet to truly impact most consumers, especially for goods coming from China. However, shipments from China typically take a little over a month to reach our harbors. We are now one month on from tariffs being announced and imports are beginning to slow. Therefore, because many companies pulled orders forward to stock up on supply, we are probably still a month or two away from any price shocks resulting from scarcity. That is something I expect to hear more about on Wednesday when the Federal Open Market Committee announces its decision on interest rates.
The CME FedWatch Tool puts the odds of a rate cut this month at less than 2%. While Trump has made clear his desire for lower rates, Federal Reserve Chair Jerome Powell has repeatedly said the tariff effects could lead to higher prices and last week’s jobs report did nothing to suggest a weakening economy in need of lower rates. With the economy remaining strong and tariff uncertainty, the Fed is unlikely to accommodate lower rates anytime soon.
Crude oil futures hit a low of $55.30 per barrel overnight. Oil has been weak all year, and to date, it is lower by nearly 20%. The fall in oil could be the result of one of three possible catalysts. First, we’re seeing greater supply. The Organization of Petroleum Exporting Countries agreed to greater output, in part to punish some members, such as Iraq and Kazakhstan, for failing to adhere to output quotas. A second potential explanation for the drop in oil could be the economic outlook. With so much uncertainty and many calling for a recession in the U.S., oil prices may be confirming less demand. Or thirdly, it could be a combination of the two.
For Monday, I’m watching oil and volatility. After nine consecutive days of rallies, the statistical odds of another day up are low. We’re seeing volatility ticking higher in premarket and I think the foreign film tariff announcement is acting as a reminder that more tariff policies can be announced at any time. Although I do think we’re past the worst of the volatility as they relate to trade policy, VIX is still more than 50% above its historical mean. If it continues moving higher, we could be in for some choppy trading. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.