The 90-day reprieve on tariffs has given markets a boost. This week, equity indexes briefly turned positive for the year. Are there more gains ahead?

 

Further upside in stocks is dependent on the next moves out of Washington. For now, tariff fears are on the back burner. Fewer tariffs imply less of a hit on the economy. That has convinced many brokers and money managers to backpedal on their recession predictions. Investor attention has now swerved to Congress and the passage of Trump's "Big Beautiful Bill."

 

The president's spending bill is beginning to take shape, although the time to passage continues to slip. The original idea was to extend the tax cuts of Trump's first term and reduce spending primarily by slashing Medicaid and "billions" in DOGE cuts. And, if possible, throw a few extra tax deductions to those in the country that need them the most. The House bill taking shape is a far cry from that idea.

 

If passed in its present form, the House Reconciliation package would add $5.2 trillion to the country's debt. Boost deficits over time to $3.3 trillion. Push annual interest costs on government debt to $2 trillion while increasing the debt-to-GDP ratio to 130 percent. And this is after $2.5 trillion in offsets are applied.

 

That is not what the bond market wants to hear. As such, is it any wonder that the yields on Treasury bonds have spiked higher in the last week? Whether this kind of legislation will ultimately see the light of day or saner heads prevail is what I am watching. Factions among the GOP are feuding on how much to increase the SALT cap on mortgage tax exemptions from the present 10 percent to some higher number. A handful of politicians from wealthy states threaten to torpedo the bill if they don't get their way.

 

It appears seniors will be screwed. Trump's campaign promises to end the double taxation on Social Security is out, although taxes on overtime may survive. So far, there is decidedly nothing beautiful about this version of the bill. It promises the same reward-the-rich and soak-the-poor legislation that has been popular among both parties for the last 40 years. Whatever the outcome, its passage will likely be a purely Republican affair, with Democrats abstaining. How that will square with voters in an era of populism remains to be seen. 

 

The Consumer Price Index and the Producer Price Index came in cooler than most expected for last month. The Street was looking for higher numbers, but readers know I had the opposite view. However, that trend toward weaker inflation numbers may have ended. The imposition of tariffs is already impacting prices.

 

Remember that the effective rate of tariffs, even if reciprocal tariffs were dropped, would still be 15.6 percent. That is the highest rate of tariffs (taxes) Americans will be required to pay since 1938. As such, higher inflation will show up in the numbers in the months ahead.

 

Consumer sentiment numbers are still falling even as the stock market climbs. The bulls believe that, at this point, Trump's tariff initiatives are nothing but bluster. In which case, there will be no recession nor decline in earnings estimates, and with Congress back to its old spending habits, the sky is the limit for equities. Many technical analysts are turning positive as well.

 

The bears, of which there are many, still cling to the idea that this three-week bounce in the averages is just that, a bear market bounce. They believe markets will roll over and re-test the lows or break them because of a tariff-crippled economy and rising inflation.

 

My guess is somewhere in the middle. I could see a new trading range develop with another 150-plus points tacked onto the S&P 500 Index, call it 6,050 to 6,150 on the high end. On the low end, 5,770 is the long-term trend line on this index. That seems about right as we await further developments on the tax bill, tariffs, and the economy.

 

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.

One country down, only 194 more to go. This week, the announcement of a "framework" for President Trump's first trade deal and the first high-level meeting between the U.S. and China encouraged investors.

 

Wall Street's enthusiasm was somewhat tempered, given that the United Kingdom was an easy deal to make. The terms of trade have always favored the U.S., where we have run a capital trade surplus for years. We have long exported far more to the UK than they have sold to America. Nonetheless, it did provide movement on the tariff question that has troubled the markets since "Liberation Day."

 

On the China front, U.S. Secretary of the Treasury Scott Bessent will meet with his counterpart in Switzerland this weekend; on Friday, President Trump floated the idea of a possible decline in U.S. trade tariffs to 80 percent, which he said "seems right." It was a clear message to the Chinese that he wanted to de-escalate his trade war.

 

The administration is reportedly lining up deals with several other countries. India, South Korea, Japan, and Australia are in the queue, although the timing is still a question mark. India would have been first out of the box, but the government's attention has been focused elsewhere over the past two weeks. The delay in an announcement is due to the present hostilities between India and its neighbor, Pakistan.

 

Given the news on tariffs, this month's Federal Open Market Committee meeting came and went with hardly a blip. The Fed announced that they were going to sit on their hands for the foreseeable future. Chairman Jerome Powell made it clear just how uncertain the future was, particularly in relation to the Trump administration's policies and their potential impact on inflation, the economy, and employment.

 

None of this was a surprise. Few on Wall Street had expected anything more from the Fed than the word "uncertain" when describing Fed policy in the future. In the meantime, stocks climbed higher while precious metals, the dollar, and interest rates continued to be volatile. Gold traders were whipsawed as bullion prices have swung in $50-$100 increments daily this week. The U.S. dollar, which has been in freefall for a month, has also been erratic, while bond yields are in a trading range lately with no significant moves either way.

 

Both foreign and domestic traders believe the U.S. dollar will fall further. As such, they are looking at currency alternatives to place bets. Gold was the first go-to asset, but speculation has driven the price too far, too soon. Cryptocurrencies appear to be an acceptable alternative for the time being. Bitcoin reclaimed the $100,000 price level on Thursday and seems destined to climb to the old highs at around $120,000.

 

Last week, I wrote, "For markets to continue their recovery, we need to see the following. A peace deal, the tariffs disappear, China and the U.S. come to a trade agreement, the Fed cut rates, and/or no recession." I forgot one more option: the successful passage of Trump's tax bill, which could significantly impact the market dynamics.

 

Any two of the above will be enough to stave off a re-test of the lows. Thus far, we have made progress on the tariff front (U.K., China, etc.). However, tariffs will not disappear altogether. It appears that no matter what, a 10 percent tariff on imports is here to stay.

 

I would guess the possibility of the passage of Trump's "Big Beautiful Bill" is high, given that the Republican Congress now functions as a rubber stamp on the wishes of the president. We will not see a recession this year, although I see a decline in GDP in the second quarter to plus-1.3 percent and plus-1.28 percent for the third quarter, which fits with my stagflation scenario.

 

As I keep reminding readers, markets are heavily influenced by Trump's decisions. This week, his statements gave stocks and other assets a boost. We did breach 5,700 on the S&P 500 Index intraday before falling back but have yet to reach my short-term target of 5,750.

 

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.

Wednesday's release of the nation's first-quarter Gross Domestic Product stunned investors since it was the first quarterly decline in the economy since 2022. Looking beyond the headline number, however, the results told a different story.

 

At first blush, the minus-0.3 percent decline in GDP sent stocks lower, with the NASDAQ down 3 percent on the day at one point. The culprit behind the numbers was a 41.3 percent rise in imported goods and services. If we import more than we export, as we did substantially in the quarter, the economy's growth decreases.

 

The surge in imports began after the November 2024 elections and continues today. These higher imports result from President Trump's intention to levy tariffs on all our trading partners. U.S. corporations have been scrambling to get ahead of these tariffs by ordering products before the deadline. Trump's second 90-day reprieve has only heightened the trend toward importing even more goods from overseas.

 

The decline in GDP  was also the first substantive instance where the "hard" economic data matched so-called soft data. Over the last three months, the University of Michigan sentiment numbers, the AAII Institutional investor surveys, and consumer confidence polls have indicated that investors and consumers are growing steadily more negative about the economy and market.

 

The president was quick to cast the blame for the disappointment on the prior administration, although, to my knowledge, neither Biden nor candidate Harris had any intention of waging a tariff war. He also indicated that if the economy weakens in the second quarter, he will blame Biden again.

 

However, if the president had just looked under the GDP hood, he might not have been so quick to duck the blame. If you strip out the import data, the economy grew by 3 percent. Private business investment was up while government spending fell. Business equipment and machinery investment rose 22.5 percent. That is a powerful upswing.

 

The Trump administration could have taken credit for that result. Trump promised that when Congress passes his "One Big Beautiful Bill," he would give business and factory investment a 100 percent immediate depreciation write-off retroactive to Jan. 20, 2025. That means the cost of these purchases would be tax-deductible in year one instead of being stretched out and deducted over the life of the equipment. How much of those purchases were related to avoiding tariffs and how much was a genuine willingness to invest in America will likely show up in the data in the months ahead.

 

In addition, the Fed's favorite inflation indicator, the Personal Consumption Expenditures Price Index (PCE), came in weaker than expected, indicating that inflation has not increased, at least for now. I expect April's Consumer Price Index to be weaker still.

 

Jobs, on the other hand, is a different story. U.S. jobless claims rose to a nine-month high, but Friday's non-farm payroll employment report drew the market's attention. The number beat estimates, coming in at 177,000 jobs gained compared to 138,000 expected. That helped markets rise to top off a good week of gains.

 

Some on Wall Street are betting that a weaker economy, steady inflation, and the threat of rising unemployment might be a sufficiently worrisome combination for the Fed to alter its wait-and-see point of view. The bond market has upped its probability that the Fed will cut rates at least four times this year. It could provide cover for Fed Chair Jerome Powell to give in to the president's continued pressure to cut interest rates now instead of waiting. 

 

Last week, the market could continue to rally, providing quarterly earnings came in better than expected. Fortunately, that is what happened. We have made progress. I could see 5,700-5,750 before a pullback occurs on the S&P 500 Index. That is a mere 50-100 points away.

 

In the meantime, my warning to wait before chasing gold proved to be the correct call. I expected at least a 10 percent correction in the yellow metal, which would take the price down to $3,150.

 

For markets to continue their recovery, we need to see the following. A peace deal, the tariffs disappear, China and the U.S. come to a trade agreement, the Fed cut rates, and/or no recession. That's a long list, so let's say just two of the above need to happen for further gains.

 

A June Fed cut is a good bet, and China said on Friday that it is at least willing to talk to the U.S. on trade at this point. A Russia/Ukraine deal and/or a U.S. recession remain a 50/50 bet. I am afraid some tariffs are here to stay. If none of the above occur, we remain in a 500-point trading range (5,200-5,700) on the S&P 500. Until these issues are solved, we remain Trump-dependent. 

 

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 week, statements from the president and his treasury secretary indicating a possible thaw in relations with China triggered a bout of FOMO among traders. Markets gained more than 6 percent for the week on a hope and a prayer. Was it justified?

 

On Monday, investors woke up to President Trump calling Fed Chair Jerome Powell "a major loser." That triggered fears that Trump was on the verge of dismissing the head of the U.S. central bank. Markets appeared to be once again rolling over. The stock market cratered.

 

By the end of the day, markets were off by more than 2 percent. It looked as if stocks were ready to roll over and at least re-test if not break the recent lows. Since the U.S. relationship with China was also worsening and with no other tariffs deals insight, traders were positioned for further declines on Tuesday.

 

However, cooler heads prevailed within the Oval Office. Treasury Secretary Scott Bessent and Commerce Chief Howard Lutnick, both Wall Street pros, intervened and worked to convince the president to tamp down the rhetoric. The last thing the administration needs right now is more turmoil in financial markets, they argued. Lo and behold, by Tuesday morning the president announced that he had "no intention of firing" Powell. A day later both Bessent and Trump changed their tune over sticking it to China.

 

Last week I wrote that "I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets." We saw that this week.

 

By mid-week, Trump assured the markets that the tariffs on China would "come down substantially," and his negotiations with China would be "very nice." Secretary Bessent chimed in. He expected a de-escalation in the trade war with China, which he said was unsustainable. Both men claimed that talks were ongoing with the Chinese.

 

I noticed a lot of "may do this and may do that" but no "we will do this" in their conversations. To me, the flow of positive statements was an obvious ploy to talk markets higher and it worked. The war of words with China, however, plays both ways.

 

China's Ministry of Commerce released a statement denying talks were being held. "At present, there are absolutely no negotiations on the economy and trade between China and the U.S." The Chinese authorities insisted that before substantive talks can take place, U.S. tariffs must be rolled back. And yet, China is considering exempting tariffs on some U.S. goods shortly.

 

As this drama unfolds, the markets are betting Trump will roll back his tariff war and that his bark is worse than his bite. In addition, many think that as Trump continues to pressure Powell to lower interest rates, at some point he will if the economy falters.

 

Despite the headline risk, corporate earnings are better than expected although only 34 percent of the S&P 500 have reported so far. Google, the first of the Magnificent Seven to report beat on earnings and sales, which heartened tech investors. The remaining mega-cap companies are scheduled to report this coming week.

 

Financial markets continue to be held hostage by the headlines. Over the last two weeks, the president has softened his stance on the tariff front. The 90-day reprieve on reciprocal tariffs and the intention to exempt some U.S. sectors from the worst fallout have relieved investors of their worst fears. A soon-to-be-announced tariff deal with India should also help sentiment.

 

Do the recent stock market gains indicate that we are out of the woods? Remember that the biggest rallies happen during bear markets and some of these rebounds can be breathtaking. The S&P 500 Index had eleven 10 percent rallies during the Financial Crisis and still lost 57 percent over a year and a half. At the turn of this century, during the Dot.Com bubble, the same index chalked up seven rallies that averaged 14 percent but still lost 49 percent over two and a half years.

 

The S&P 500 Index has gained roughly 7 percent this week. Compare that to a 9 percent return per year, which is the long-term average for the S&P 500, so these returns over a short period of time are astounding. And almost every time these bounces occur, investors convince themselves that the bottom is in only to be handed their heads in subsequent downturns.

 

At this point, there is simply too much uncertainty ahead for me to call an "all clear" in the markets. We could see a bit more upside into the beginning of May provided earnings continue to come in better than expected. But I would need to see another 200 points tacked onto the S&P before changing my tune. In the meantime, if you have discovered that your risk tolerance is not as accurate as you thought, take the time to adjust your investments to a more defensive stance.

 

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.

On Thursday, investors hoped that Fed Chair Jerome Powell, speaking in Chicago at the Economic Club, would assure markets that he would backstop any downside from President Trump's policies. They were disappointed.

 

Even worse, he said, "The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth."

 

The fact that the leader of the world's most powerful central bank seemed to confirm the worst fears of investors triggered another $1 trillion sell-off in equity markets. The president quickly posted his displeasure at the central banker's comments on social media stating that "Powell's termination cannot come fast enough!"

 

All week, traders monitored every word coming out of the White House. Their algo programs immediately translated any news into buy and sell programs. That vaulted markets up or down in seconds with billions of dollars riding on words like "maybe," "positive," "unhappy," etc.

 

The typical retail investor is no match for this kind of volatile trading. Those who try are chopped up in pieces. Adding to the tariff tensions, the first quarter earnings season is underway. Just about every analyst is expecting earnings estimates to go lower and many companies to pull yearly guidance.

 

While the big banks reported good earnings, the number one market stock, AI semiconductor darling, Nvidia, surprised the market by announcing a $5 billion charge to income due to the government's future restriction of its popular H20 chip sales to China. That sent the stock price of Nvidia down by 10 percent overnight.

 

At the same time, the Trump administration increased China tariffs again to 245 percent. It also revealed that it is negotiating with 70 countries to disallow China to transship its goods to the United States. None of that seemed to phase Chinese internet stocks which gained more than 1 percent on the news.

 

Overall, market participants have still not given up their buy-the-dip mentality even though the markets' fundamentals and the economy are steadily deteriorating. The market trades at a market multiple of 23 times earnings right now with earnings for the year forecasted to rise by 10 percent.

 

If economists and the Fed are right, and the economy slows while inflation rises, does this kind of valuation make sense? If we experience a two-quarter recession this year, history tells us that a mid-teens earnings ratio would be appropriate. If so, we have not seen a decline in the lows in this market.

 

Investors, however, are hoping that at any moment, the White House will announce breakthrough deals with several countries. I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets. This week, Japan topped the list of "positive" meetings trumpeted on social media, while the lack of progress on the European front was not mentioned.

 

One of the only places that investors have been able to see gains is in gold and silver mining stocks. As readers know, I have been positive in this area for months, but I would caution those with a bout of FOMO to resist the temptation to chase these investments right now. This is a crowded trade in need of a serious pull-back before considering new purchases.    

 

Where does that leave us in the overall markets? Hoping for a breakthrough is not an investment strategy, nor is waiting for another 9 percent one-day market spike. We are all Trump-dependent and will continue to be. The longer these tariff negotiations take, the lower the markets will go.

 

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.