The surprise revisions to the non-farm payroll data last week convinced investors that the Federal Reserve Bank will lower interest rates at its next meeting in September. Beyond that, expectations that at least two more rate cuts are in the offing sent stocks flying.

 

The promise of a potential decline in interest rates outweighed the Aug. 7 implementation of reciprocal tariffs by the Trump administration. Then again, while the headlines appear to show sweeping tariffs levied on dozens of countries, with "no exemptions, no exceptions," the truth is much murkier.

 

The announcement of 100 percent tariffs on semiconductors by the White House on Wednesday came with the caveat that companies that are investing in U.S. manufacturing will be exempted. Precious few global semiconductor companies are not investing in the U.S.

 

Trump also said that India would be hit with an extra 25 percent tariff in addition to the 25 percent tariff it already faces for buying Russian oil. And yet, China, which buys more oil from Russia, gets a free pass. Brazil faces similar 50 percent tariffs, but behind the headlines, the number of exemptions on imported goods is climbing quickly. About 43 percent of Brazil's $42.3 billion exports to the U.S. have already been exempted from these tariffs.

 

A long list of products, including minerals, metals, drugs, aircraft, and food, has been exempted as well, depending on the country or company's ability to make a strong case to the administration negotiators. As such, TACO is alive and well. It is not that obvious unless one is willing to read the fine print (if there is any). 

 

It is the reason why tariffs have become yesterday's news. Investors erroneously believe that Aug. 7 marked the end of the trade war. We have seen the end of the beginning of an ongoing period of trade negotiations. We have entered a different world where the U.S. can and will implement tariffs on any country, at a moment's notice, for any reason real or imagined.

 

However, markets no longer focus on anything more than the next few months. Tariffs are out, earnings were in this week. Corporate profits were better than forecasted. At this point, with so many participants understanding the farce behind earnings beats, all that matters is guidance — what company management says they believe will happen in the next few quarters. Good guidance, good performance, it's that simple. 

 

Readers may wonder why last week's stunning reversal of the employment numbers sent stocks higher. Remember, sometimes Maine Street and Wall Street have different agendas. For those who missed it, June's non-farm payroll data and the massive revisions, which lower the number of jobs gained in the past three months, were seen as a body blow to the economy and job growth. That isn't good for Main Street. Wall Street, however, quickly realized that slower job growth was likely to force the Fed to cut interest rates and shift from its wait-and-see stance. Typically, lower interest rates equal higher stock prices. 

 

The macroeconomic data continues to support my contention that we are in an environment of mild stagflation. As I have written before, gold and other precious metals do well in that background. Usually, a declining dollar accompanies stagflation, as it has been doing so far this year. That also supports gold, silver, and cryptocurrencies. Tariffs on 100-ounce and 1-kilo bars of gold are also playing their part by pushing the price of gold higher. Importing this gold primarily from Switzerland is now subject to 39 percent tariffs.

 

In any case, the bond betting market has now penciled in at least three rate cuts this year (up from two). September's probabilities are above 90 percent. My forecast (if accurate) for a lower July Consumer Price Index reading (released on August 12) would improve those odds.

 

Last week, I advised readers that we were in the middle of a slight pullback. The tech-heavy NASDAQ fell about 4 percent. The S&P 500 declined less than that. This week, we rebounded quickly with the NASDAQ large and in charge. I expect we can move a bit higher into next week, but I doubt the selling is over. Fewer and fewer stocks are participating as we climb higher. Don't be surprised to see some higher volatility in the weeks ahead.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This weekend, my wife went shopping for a beach hat but came home empty-handed. A new display of plastic skeletons, smiling pumpkins, and scary costumes occupied the beachwear display at her favorite store. Welcome to Summerween.

 

If you thought holiday merchandise is getting earlier each year, consider the July launch by most retailers of their fall Halloween collection. Walmart calls it their "Summer Frights" section, but it was Home Depot that first set the tone by marketing 12-foot skeletons back in April. Michaels, Lowes, Target, Costco, HomeGoods — you name it — major retailers have jumped into this trend.

 

The fact is that Halloween spending is a multibillion-dollar business. Last year $11.6 billion went into buying candy, home decorations, costumes, parties, and pumpkins. This year, retailers are expecting $12.2 billion, which would be a record spending total, according to the National Retail Federation.

 

That is a 37 percent gain over the last five years, and 47 percent of shoppers in their annual survey said they were beginning their Halloween shopping before October. Early shopping continues to be dominated by the 25-34 age group, with almost 50 percent of consumers saying it was their favorite holiday. But in July? 

 

Think skeletons in beach chairs, ghosts in bikinis, and sun hats on Frankenstein. It all started with an episode of Disney's animated show "Gravity Falls" (season 1, episode 12). The town of Gravity Falls loved Halloween so much that they decided to celebrate it twice a year (June 22 and October 31). That started a trend, but the summer dates are loose with Summerweeners picking the last weekend in July or whenever they decided, as long as it was in the summer.

 

And just like its Fall sister, Summerween has its own lineup of snacks and drinks from mummy hot dogs to marshmallow ghosts. Kids have been known to paint beachballs as pumpkins while parents have crafted ghoulish-themed floral displays from their gardens.

 

Retailers were quick to capitalize on the trend, which has only kick-started this summertime holiday trend. Walmart introduced its July deals with a DIY pumpkin head figure. Michaels beat them to it, launching two out of their five Halloween collections on June 13. Spirit Halloween plans to open more than 1,500 stores and hire 50,000 retail associates sometime in August. And Home Depot launched its full lineup of online Halloween items this week. Their collections will be in stores before Labor Day.

 

Don't think it's all about greed, however, what is pushing consumers to spend so far in advance can be summed up in one word: tariffs. Back in April, the Halloween and Costume Association warned that tariffs were threatening to wipe out Halloween and severely disrupt Christmas unless urgent action was taken to reverse them. Since most Halloween items are imported from China, that threat is real.

 

Currently, there is an across-the-board 55 percent tariff rate on Chinese imports into the U.S. Many retailers have already downsized their orders much earlier in the year, so shoppers who wait risk paying more for the most coveted items, and costumes will be out of stock. At this point, even if the U.S. comes to a trade agreement before the Aug. 12 deadline, it will be too late to alter the supply and demand balance for this year.

 

My advice is not to be too upset over the early Halloween displays. Embrace the change and celebrate along with the 47 percent of shoppers who love the holiday and now get to celebrate twice a year. Just make sure that the Reese's Peanut Butter Cups and M&M's are on ice. Happy Summerween!

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The Aug. 1 tariff deadline has been pushed back again by Donald Trump, but only for a week. The latest non-farm payroll report for July was weaker, and both the May and June numbers were revised downward. Investors were not expecting that news, and stocks tumbled as a result.

 

The U.S. economy added 73,000 jobs, below the expected 104,000. It was enough to move up the unemployment rate to 4.2 percent. At the same time, May's job gains were revised downward from 144,000 to just 19,000 jobs, and June's number came in at only 14,000 job gains versus the initial report of 147,000. It is hard to believe that errors of this magnitude are unintentional.

 

The jobs data made the president's threats of even higher tariffs on numerous countries beginning Aug. 7 that much more worrisome. The week started positively on the trade front. After two days of positive negotiations between China and the U.S. in Stockholm, markets had expected that the Aug. 12 deadline for a resumption of massive tariffs would be extended. However, negotiators made it clear that the final decision would be up to President Trump, who has yet to agree to any extension.

 

A last-minute deal with South Korea produced an agreement for a 15 percent tariff plus a commitment to invest $350 billion in the U.S. Like all the other investment promises, the details and timelines for when and what remain fuzzy. Korean negotiators say that this agreement was a purely verbal understanding with nothing in writing.

 

Trump's Canada, Brazil, and India talks have still not been finalized, and the president continued to insist the Aug. 1 deadline won't be extended beyond Thursday evening. Yet, on Friday morning, the deadline has been extended again by one week. In the case of Mexico, he agreed to extend the completion of a trade deal by another 90 days.

 

As for corporate earnings this week, both Microsoft and Meta beat second-quarter earnings handily on Wednesday. They predicted a rosy future ahead for their efforts in cloud computing and AI. Meta shot up more than 11 percent as they beat earnings estimates and guidance for the year. Microsoft jumped almost 5 percent and joined Nvidia in a league of their own as both companies' market capitalization surpassed $4 trillion each. Neither Amazon nor Apple fared as well, and all these stocks gave back some of their gains on Friday.

 

By Thursday, the seven largest U.S. companies had reached a combined market value of $20 trillion. Earnings for these companies have generated nearly $600 billion and now account for 30 percent (up from 8 percent 15 years ago) of the S&P 500's combined $2 trillion in net income.

 

The seven are trading for 33.7 times current earnings and have pushed the overall price/earnings of the market to more than 27 times. The capital expenditures at Microsoft, Apple, Amazon, Google, Meta, and Broadcom are consuming a significant portion of the cash they earn from operations, and Nvidia is a major beneficiary for some of that capex.

 

Overall earnings continue to beat estimates and have, until now, added fuel to the rally that seemingly never ends. Until Friday, investors have been looking past the tariff issues, expecting another TACO at the last moment. It helped that in the previous two weeks; the U.S. negotiated a framework for deals in both the European Union and Japan.

 

In addition, they have seen little evidence year to date that tariffs have had any impact on economic growth, and neither has the Fed. This week's FOMC meeting was a disappointment because the Fed is still insisting that it needs more data before deciding to cut interest rates. The jobs report for June may change that perception, at least when it comes to employment.

 

Over in the bond market, the U.S. Treasury announced it will need to raise $1 trillion in the three months to September just to keep the government running. That does not account for any of the new spending authorized by Congress in their recent tax and spending bill. Much of that fund raising will be targeted at bills and notes between a week and a year while keeping the size of its auctions of longer-dated bonds steady.

 

This is a continuation of the strategy under former U.S. Secretary of the Treasury Janet Yellen. It is a ploy to keep long-term interest rates from shooting through the roof as Congress spends more and more. The risk is that each time that this short-term debt matures, which is at least once a year, it must be replaced by new debt issued at current interest rates. If rates were to rise, the Treasuries debt burden would rise with it.

 

I urge readers to read my recent two-part series  on fiscal dominance, "What is really behind the move to replace Jerome Powell." It will give you an understanding of why it is critical that the administration has more control over the Federal Reserve Bank.  

 

As readers know, I have been warning that stocks were overextended and in need of a timeout. We began that pullback this week. Before it is over, we could see a 4-5 percent decline in the S&P 500. I expect a few more days of volatility as investors figure out how serious Trump's new tariff deadline could be.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The unemployment rate in the Gen Z population, those born between 1997 and 2012, is edging up to 7 percent compared to the nation's overall employment rate of 4.3 percent. That is the highest gap the country has seen in 30 years. For entry-level college grads, aged 22 to 27, the number is roughly 5.8 percent — the highest level in a dozen years.

 

Fed officials and private sector economists have been quick to point out that the uncertainty created by the Trump administration's tariff increases is a major cause of reluctance among businesses to hire young, inexperienced workers. That makes some sense since entry-level jobs are the first to go in times of economic uncertainty.

 

Job openings in June fell to a post-pandemic low, but the rate of layoffs also stood near a record low, which is a good sign for the broader U.S. economy. Companies are reluctant to cut jobs because of the chronic labor shortage. They are worried they won't be able to rehire enough experienced people when the economy speeds up.

 

Young Gen Z workers are struggling to find jobs. Economists blame the uncertainty of tariffs, and, among white-collar workers, artificial intelligence is also taking its toll on entry-level college grads.

 

One interesting development is that the unemployment rate is just about the same regardless of whether the applicant holds a college degree. If one looks at overall job openings, there are still millions of jobs available, but many of them do not require a college degree. Corporations are realizing that an automatic college-level degree requirement for many entry-level jobs in their screening process is superfluous.

 

Over many years of writing these columns, I have addressed this subject on several occasions. I urged readers and their children alike to reconsider the worth of a trade school education versus a college degree. For those interested, check out my Feb. 14 and 21, two-part, 2013 columns "Trade Schools Versus College." 

 

Fast-forward to today, where at least some readers have taken my words to heart. The overall share of young college students has declined by about 1.2 million between 2011 and 2022, according to Pew Research Center. Enrollment at two-year vocational public schools has increased by 20 percent since 2020. It appears that we are finally realizing that vocational careers are enormous opportunities that pay exceptionally well.

 

History still says individuals with a bachelor's degree earn $1 million more over their lifetimes than those with a high school diploma and $500,000 more than those with an associate's degree. Of course, the area of study in college is important as well. Over the last decade or so, for example, many students realized that jobs for graduates with a liberal arts degree were scarce. Those who were lucky enough to land an entry-level position found that their salaries were less than what high school grads were making in fast food chains. This convinced many students to find more lucrative fields of study.

 

"You can't go wrong with a degree in technology" became the mantra of the day as college enrollment surged in programs leading to entry-level jobs in computer system design, related tech fields, and mathematical and computer sciences. Unfortunately, over the last few years, these areas have been among the first to feel the brunt of the increased adoption of artificial intelligence systems.

 

The professions where hiring is still exhibiting some modest gains are in health care, government, restaurants, and hotels. We all know that government jobs, thanks to DOGE, are among the riskiest fields to enter, while restaurants and hotels rarely require an upper-level education degree. Health-care occupations are projected to grow much faster than the rate of all professions, around 1.9 million openings each year, according to the Bureau of Labor Statistics. It is also recession-resistant, as more Baby Boomers require more health care.

 

Gen Z, at 70 million people, accounts for 20.81 percent of the U.S. population. Politically, this age group has traditionally leaned left, but that shifted somewhat during the last presidential election. For the first time ever, Gen Z voters backed more Republicans (47 percent) than Democrats (46 percent). The shift is widely attributed to economic frustration, discontent with President Biden, and the GOP's outreach to young people on social media.

 

However, over the last few months, support for the GOP has wavered, according to the latest data by the Pew Research Center. Gen Z has swung back to favoring Democrats by 49 percent, while Republican support has dropped to 43 percent. 

 

How much of that dissatisfaction is due to the economic frustration of unhappy college grads remains to be seen. Last year, according to the World Population Review, there were more than 20 million students enrolled in colleges and universities in the U.S. Just a quarter of that total would be more than enough to swing sentiment, especially in a period of populism and partisanship. Remember that in a populist era, voters are quick to reject candidates and political parties that fail to deliver and deliver quickly on their promises. 

 

The good news for college grads, if there is any, is that the economy is still growing. If the Trump plan to grow the economy at 3 percent per year pans out, and immigration continues to slow, there will still be plenty of jobs for Gen Z college grads. They may not be in their chosen field, but a job is a job. And if they really want to make money, try plumbing or electrical work.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Markets have made significant progress since April. The announcement by the White House that Japanese tariffs would only be levied at 15 percent instead of 25 percent sent U.S. markets on a tear. Imagine if they were 10 percent.

 

"The largest deal ever made," according to the president, means that Japan will pay a 15 percent tariff to sell goods to us, while we will pay nothing to sell goods to them.

 

In reality, Americans will pay 15 percent more to buy goods from Japan, and the Japanese will pay nothing to purchase goods from us.

 

Japan exported $141.52 billion to the U.S. last year. President Trump's tariff deal will therefore cost American corporations and consumers an extra $21.22 billion annually. If you believe that Japanese exporters will pay this tax, I have some oceanfront property in Arizona that I want to sell you. The amount consumers are willing to pay versus what corporations pay will depend on the circumstances. Currently, corporations are absorbing most of the additional costs.

 

These tariffs were supposed to protect U.S. automakers, but General Motors just took a $1.1 billion hit to its second-quarter earnings from Trump's tariffs. They expect the tariff impact to worsen in the third quarter and estimate a $4 billion-$5 billion tariff loss for the year. The American Automotive Policy Council, which represents the Big Three automakers (General Motors, Ford, and Stellantis), says the agreement puts their companies at a competitive disadvantage since they face a 50 percent tariff on steel and aluminum and a 25 percent tariff on parts and finished vehicles under the agreements with Canada and Mexico.

 

What sold the deal to Donald Trump was the $550 billion the Japanese have supposedly promised to invest in the U.S. Actually, it is not investment per se, but government loan agreements and guarantees to support investments. That is what Japan is offering, but the investment part of this agreement is just a policy goal, and not a legally enforceable commitment. This will also result in a larger trade deficit in the U.S. balance of payments, in case anyone cares.

 

Trump claims that the U.S. will receive 90 percent of the profits. On Friday, the Japanese disputed this, stating that the profit split will be based on contributions made by both parties. I can see where the president gets his numbers, since it will be Americans borrowing the money and making the investments, they deserve the lion's share of any profits.

 

Japan will provide the loans, acting as a banker on these infrastructure projects, and make its money on the interest charged. That is not a bad deal for Japan. It is similar to China's Belt and Road initiatives. For years, China has provided loans to indebted, emerging market economies to build global infrastructure projects. In this case, the U.S. (also a debt-ridden country) acts as the emerging market.

 

When all is said and done, if we assume that this deal will provide a blueprint for global agreements in the future, a tariff rate of 15 percent, worldwide could be the worse America may have to endure. If so, investors may have avoided the worst. They have, but it would still be a heck of an increase from the 2.4 percent rate we had in January. It will be a massive anti-growth tax bite for the economy.

 

U.S. Treasury Secretary Scott Bessent argues that the pro-growth elements of Trump's tax and deregulatory agenda will offset the damage caused by tariffs. Buried in the One Big Beautiful Bill fine print are several tax offsets to help corporations weather the hits to their profit margins. The 100 percent equipment and factory expensing, for example, helps offset some of the tariff expenses.

 

The same can be said for high-tax bracket individuals, who could see substantial extra tax benefits due to the increase in SALT tax deductions. For married joint filers, the deduction soared from $10,00 to $40,000. This allows high-income earners and business owners to deduct a larger portion of their state and local taxes ( another $30,000) from their federal taxable income. As for the rest of us, prepare for a lower standard of living.

 

Two more tariff deals were also announced: one with the Philippines and the other with Indonesia. Both countries will be saddled with 19 percent tariffs on their total exports to the U.S. of $14.5 billion. That is an additional $2.75 billion that Americans will need to absorb.

 

Second-quarter corporate earnings thus far have been good enough to "beat" Wall Street estimates. Overall, of the 164 companies ( 33 percent of the S&P 500) reporting so far, 84 percent are beating estimates. Earnings, combined with reasonable economic data, have supported stocks this week as well.

 

Markets continue to grind higher as we await news on a trade deal with the European Union and the Fed's Open Market Committee meeting at the end of next week. President Trump gives the odds of a trade deal with the EU as 50/50, and markets are betting that there will be no interest rate cuts by the Fed in July.

 

Historically, August marks the beginning of a challenging period for markets that lasts into October. Days of record highs have stretched markets to the breaking point, but most traders believe that any pullback in stocks would be 2-3 percent at most. That would barely be a blip in the scheme of things.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.