Stocks should climb a bit higher this month. The next round of tariffs is not due to be levied until July nor will Trump's Big Beautiful Bill (BBB) be passed until then. That gives investors some breathing room to book some gains.

 

The first-quarter earnings season is just about over. Overall results have beat estimates by 6 percent with 79 percent of companies delivering an upside earnings surprise. The incoming economic data has been mostly favorable but much of the data reflects an economy that has been rushing to purchase what it can before the onset of further tariffs.

 

A key economic indicator, The Institute for Supply Management (ISM), data for May showed a slowdown in business new orders and services and an increase in prices and employment. That is in keeping with my own forecast of an ongoing mild case of economic stagflation.

 

The employment numbers for May — a gain of 139,000 jobs — indicated that the labor market remained largely resilient amid the government's new tariff policy. I am forecasting a slowdown in the economy but am still expecting a 1.8 percent gain in GDP for the second quarter, followed by a 1.36 percent gain in the fourth quarter — slow but no recession. Those data points are a bit higher than most economists are expecting. On the inflation front, I see the Consumer Price Index for April announced to show a 2.36 percent increase year-over-year. Regular readers know I am predicting that the data will begin to show an uptick in the inflation rate that will continue into year's end.

 

That is one reason why I doubt the Federal Reserve Bank will bow to the president's wishes to cut interest rates anytime soon. The bond market has penciled in two rate cuts before years' end, but it is hard to see that happening with rising inflation. One caveat would be that if the tariff war drove the economy into recession, while employment fell off a cliff, the Fed might be forced to cut.

 

In the meantime, after months of promising trade agreements were just around the corner, Wall Street is in a "show me" frame of mind. The most progress on trade this week was a brief phone call between the president and his Chinese counterpart and a meeting with the newly elected German leader, Friedrich Merz. Investors are convinced that the TACO (Trump Always Chickens Out) tariff play is alive and well within the White House.

 

The administration has until June 9 to justify its sweeping tariffs under the Emergency Powers Act before the U.S. Court of Appeals. If unsuccessful, the Court of International Trades' decision a week ago to block those tariffs will stand. If so, legal experts predict the case will go to the Supreme Court immediately. In the meantime, our trading partners will most certainly drag their feet in tariff negotiations.

 

And while investors are no longer "tariffed," the spending side of the BBB is before the Senate. It has been crucified by the president's best bro and megabucks campaign backer, Elon Musk of Tesla. Musk has blasted the BBB as a "disgusting abomination" and demanded Congress "Kill the Bill."

 

 The forever friendship of the two amigos seems to have hit the rocks, if their vitriolic exchanges on social media this week are any indication. Will they kiss and make up? Let's hope so. Musk, through his ownership of X, has a large and powerful social media presence that could pose a serious threat to the bill's passage. Given their slim majority in both the House and Senate, the Republicans face the uncomfortable prospect of renegotiating the spending portion of this bill.

 

As for the markets, I wrote that the S&P 500 Index is in a trading range. My upside target is 6,100-6,150 or 100 to 150 points from here. This should happen in fits and starts working its way higher into July. At that point, traders will begin to discount the ramifications of possible tariffs and the passage of the tax and spending bill on inflation, growth, debt and the deficit.

 

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.

Equities remained on hold this week but managed to produce gains for the month. Tariff news dominated the tape, while the quarterly earnings results supported the market overall. Thanks to strong earnings from Nvidia and a federal court decision against reciprocal tariffs.

 

It was a Mr. Myagi kind of week as tariffs off, tariffs on ping-ponged through the federal court system while global markets reacted in kind. On Wednesday, a federal trade court blocked some of President Trump's most sweeping tariffs, set to take effect in July. The three-judge panel of the U.S. Court of International Trade placed a temporary hold on some tariffs imposed by utilizing a 1977 law called the International Emergency Economic Powers Act (IEEPA). That lasted less than 24 hours as White House lawyers managed to lift the order for ten days.

 

The president had argued the act gave him the authority to impose reciprocal tariffs worldwide, but the court disagreed. It wrote that Trump's actions  "exceed any authority granted to the president by IEEPA to regulate importation using tariffs." Duties based on other laws remain in force, such as tariffs on steel, aluminum, and autos.

 

Expectations that the ruling would shoot down the tariffs may have been why so many countries have been "negotiating with good faith" and yet were unwilling to sign on the dotted line until the trade court announced their decision. Why agree to anything when the country's legal system declares your actions illegal? It appears foreigners were right to hold out until this week.

 

The U.S. court system is causing increasing problems in the implementation of many of Trump's most important initiatives. Over 328 lawsuits have challenged Trump's use of executive powers. The courts have ruled against him in more than 200 cases so far in his second term. Immigration, deportations, reduction in the size of government, birthright citizenship, transgender military service, DEI programs, and now tariffs.

 

However, the Wall Street consensus is that the trade war is far from over. There are more conventional means at the president's disposal to impose tariffs, although they do not confer the broad powers Trump claims he needs. The more traditional approach would be to utilize provisions of U.S. trade laws, such as Section 232 (tariffs on national security grounds) or Section 301 (unfair trade practices), to impose tariffs.

 

Overall, this legal setback will likely delay and complicate the imposition of tariffs. Appeals take time, as will adjusting trade strategy. Given that tariff revenues figured prominently in the calculations of deficit spending, the delays may also cause trouble within the Republican Congress and its timetable for passing the tax and spending bill.

 

Aside from busting the budget, the "One Big Beautiful Bill Act" also includes a change in the tax treatment for foreign capital in the U.S. under a provision labeled Section 899. The provision states that "discriminatory foreign countries” that impose levies that impact U.S. companies would be charged a new 5 percent tax on their U.S. income. Why should you care?

 

If passed, it would transform the present trade war into a capital war, where U.S. assets, such as plants and equipment, as well as purchases of bonds and stocks owned by foreigners, including foreign governments, would see their income taxes here grow to 20 percent per year. It would certainly hasten the current trend among non-U.S. investors to reduce their holdings in the U.S. How that squares with Trump’s desire to increase foreign investment is a mystery to me.

 

As for the markets, I warned readers last Friday not to take Trump's threat to apply 50 percent tariffs on Europe seriously. The markets sold off, but I wrote, "His track record for implementing such actions in the recent past has been spotty at best." Sure enough, by Sunday afternoon, he backed off. 

 

Again, in a post this Friday morning (is this becoming a Friday thing?), Trump accused China of violating their two-week-old trade agreement. Markets fell once again on the news. It's impossible to predict how long this tantrum will last but traders have now begun to discount the president's on-again, off-again, shoot-from-the-hip outbursts. His tariff tactics have earned him a new moniker making its way across social media — "TACO," which means "Trump Always Chickens Out."

 

Nvidia, the semiconductor leader in AI, delivered a robust set of numbers in its latest quarterly results, which provided support for technology stocks and the broader market. Earnings overall have been surprisingly good. Economic data has been mixed, with both the economy and inflation slowing. GDP declined by 0.3 percent in the first quarter, driven by a surge in imports. The Fed's inflation forecaster, the PCE Index, came in less than expected for April, as I had expected.

 

In any case, markets are extended but working off those overbought conditions through time. It appears that stocks are poised to continue their upward climb, barring any new developments from the White House. The best-case scenario for the S&P 500 Index would be between 6,000 and 6,200 before taking a breather.  

 

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 Friday morning, Donald Trump decided to ruin investors' Memorial Day holiday weekend by threatening Apple with 25 percent tariffs on foreign-made iPhones and 50 percent tariffs on Europe. Stocks sank worldwide in response.

 

Whether the president will carry through on his threats remains to be seen. His track record for implementing such actions in the recent past has been spotty at best. Nonetheless, the armies of proprietary traders and algorithmic computers that control markets always shoot first and ask questions later.

 

I must confess that the timing of these announcements is somewhat suspect. Throughout the week (until Friday morning), the serious issues we face in the nation's debt and spending was the focus of investors' attention. Trump's "Big Beautiful Bill" passed the Republican House by a narrow margin. The consensus on Wall Street Bond was that this budget-busting bill was over the top. Last week, I warned readers that the House bill would increase the nation's debt and deficit. The bill will increase the deficit by almost $3 trillion over ten years and $4-$5 trillion to our debt load.

 

While stocks rose a little in relief that the GOP could at least pass a significant piece of legislation, if only by a vote or two, bond investors both here and abroad were not happy. The U.S. Treasury's 20-year bond auction on the eve of the bill passage could only be described as ugly. Investors went on a buyer's strike, which sent the yields on government bonds higher across the board. The 10- and 30-year bonds saw their yields break 4.5 percent and 5 percent, respectively. That drove equity investors into a tizzy. Markets declined with the dollar, while gold and cryptocurrencies spiked higher.

 

The stock market has drawn a line in the sand for months on bond yields. The lights begin flashing red when the yield on ten-year government bonds reaches 4.5 percent. At that point, many believe interest rates start to dent economic growth, corporate earnings, and, therefore, valuations in the stock market.

 

The downgrade of the nation's debt by Moody's credit agency from AAA to Aa1 this week didn't help the mood either. It was the last of the big three credit agencies to downgrade U.S. debt. They cited the growing burden of financing the federal government's budget deficit and the rising cost of rolling over existing debt amid high interest rates. It is now costing more than $1 trillion per year to do so.

 

By Thursday, bond yields continued to climb. The 30-year hit 5.11 percent, while the tens were yielding 4.6 percent. Equities struggled to hold onto their gains. Investors were torn between relief that the continued tax breaks since 2018 would continue and worries that the debt-fueled fall in the dollar and rise in interest rates would continue.

 

The administration argues that its policies, tax breaks, and deregulation will allow the economy to grow its way out of the debt and deficit quandary. It is a risk. The alternative of just slashing spending would likely result in a recession, higher unemployment, and a Republican loss in the mid-term elections. 

 

In the meantime, the dollar has now lost 8 percent since Trump took office. Fears of a burgeoning debt and deficit problem, policy uncertainty. The trend of 'money going home' has been cited as the cause of the decline. I suspect a weaker dollar has been part of the administration's economic plan from the beginning.

 

U.S. Treasury Secretary Scott Bessent knew that U.S. tariffs would trigger a corresponding increase in tariffs on American imports by our trading partners worldwide. Putting aside the threat of reciprocal tariffs, the administration appears determined to maintain its global 10 percent on all imported goods and services. Logically, other nations will retaliate with a 10 percent tariff on our goods. Those tariffs would hurt American exporters unless the dollar declined by the same amount as the tariff. 

 

By the week's close, however, Trump had managed to shift investors' attention away from the bonds and debt debate and back on him and tariffs in just two social media posts before the markers opened. His posts also sent the 10-year bond yield below 4.5 percent, pushing the dollar further. Mission accomplished.

 

As for the stock market, in my last column I wrote that the equity markets are in a trading range. As such, we can see further weakness in the averages into next week before bouncing back higher. Gold continues to shine. Bitcoin reached a new high, and the dollar continues to decline.

 

As usual, we remain Trump-dependent, and Friday's announcements only underscore that point. He is a master of marketing, and this Memorial Day you can be sure that the topic at BBQs will be Donald Trump and his tariffs and not the price of beef, and that is just how he wants it.

 

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 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.