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.

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.

Watching paint dry, grass grow, or the markets' action, same, same so far this month. The S&P 500 Index is up about one percent since the beginning of July, not bad, but the big events won't happen until the end of the month.

 

It isn't as if there is no news flow. The president continues to send letters to more than 100 countries. However, few of them have any significant trade with the U.S. Trump continues to boast about tariff revenues, stating, "$113 billion was collected for the first time during the fiscal year."  Given that this money is coming out of  U.S. corporate profits, which they will then pass on to American consumers, this tariff tax is not a good thing.

 

Trump also allowed Nvidia to resume selling semiconductor chips to China (wipe on, wipe off) and, in his spare time, wants to fire (not fire) Fed Chairman Jerome Powell. The controversy over replacing Powell has many market participants worried. Exactly why that may be the case is the subject of my recent column, "What is really behind the move to replace Jerome Powell." I discuss Fiscal Dominance and its ramifications for markets.

 

As the capital swelters, along with the rest of the country, inside Congress, we are finishing up crypto week. Three separate bills—the GENIUS Act, the CLARITY Act. And the Anti-CBDC Act has been passed by the House. The Genesis Act establishing federal regulations for dollar-pegged stablecoins now goes to the Oval Office to be signed into law. The other two bills, if passed by the Senate, establish a market structure for digital assets and prevent the creation of a central bank digital currency. 

 

Passage was supposed to be a lay-up, according to the crypto community, but various Republican factions held it up for a variety of reasons. The president managed to intervene and carried the legislation over the goal line. Crypto is where most of the money was made in a slow market this week.

 

Cryptocurrencies experienced a significant price surge this week, except for Bitcoin, which remained on the sidelines after gaining 12 percent over the last month. Ethereum, on the other hand, gained 20 percent, while lesser-known coin names like Solana (+6.3 percent) and XRP (+23 percent) also participated. These cryptocurrencies, along with various companies that trade or mine digital assets, such as Coinbase (+12 percent) and Robinhood (+13 percent), outperformed most other sectors of the market.

 

Crypto bulls claimed the legislation will forever alter the perception and demand for crypto among institutional investors worldwide. Social media was full of posts predicting Bitcoin prices of $1 million or more. Ignore that. The passage of these last two bills by the Senate will be beneficial for the asset class. It will make it a safer bet for more investors. The question is whether the run-up preceding the passage of these two acts will trigger a typical "sell on the news" reaction in the cryptocurrency markets. If so, I would be a buyer of that pullback, as my Bitcoin target is $145,000.

 

On the macroeconomic front, we have seen some solid data this week. Retail sales were up 0.6 percent last month. Weekly jobless claims were lower at 221,000 applicants, while the ratio of export to import prices remained tame. As for the inflation data, the Consumer Price Index came in higher than the Street estimated, while the Producer Price Index was cooler for June. This month's CPI will show slightly weaker data but then rise again into December.

 

As I mentioned last week, Volatility Control Funds have been supporting the markets, and now attention will switch to second-quarter earnings. As readers are aware, many of these earnings announcements are meaningless. Wall Street analysts deliberately reduce their expectations for the companies they favor so corporate managements can "beat" those estimates. 

 

This system enables trading desks to book extra profits by capitalizing on FOMO chasers. Traders regularly buy company stocks before the expected results and then book their gains by selling to the retail crowd. It is always a wonder to me why investors fail to learn that chasing these so-called earnings surprises is usually a losing game. 

 

In any case, markets are extended but continue to forge ahead. Investors remain convinced that Trump's Aug. 1 tariff deadline is another mirage. If so, markets continue to rally. If not, sayonara to the stock market. The bond market remains neutral on prospects for tariffs.

 

Polymarket, the digital prediction market, places less than a 50 percent chance that any of the largest U.S. trading partners will come to a tariff agreement before Aug. 1. The highest is India (41 percent chance), while Germany has the lowest (3 percent). There may be a handful of tiny countries that could announce deals this coming week, but nothing consequential. As usual, Donald Trump holds the cards on the markets' next direction.

 

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.

Over the last few weeks, the above statement has been appearing on financial channels, in newsletters, and on many trading desks. That runs counter to everything taught in business schools and the financial world at large. Has the stock market truly become a trillion-dollar casino, or is there something else going on?

 

As readers are aware, the Trump administration has pushed back the implementation date of reciprocal tariffs until Aug. 1. In the meantime, the White House is sending a flurry of form letters to various countries, listing what will happen if they do not make a deal with the U.S. before that date.

 

A new risk on the tariff front is that Donald Trump showed his willingness to step beyond the economic frontier in his tariff war. Unlike many countries, Brazil has a trade deficit with the U.S. That means Brazilians buy more from us than we buy from them.

 

This time, he is using tariffs to insert himself into a country's domestic political affairs. He threatens to slap a 50 percent tariff on Brazil unless Brazilian authorities drop charges against former President Jair Bolsonaro, a right-wing populist leader. Bolsonaro is accused of attempting an alleged coup and trying to poison the sitting president, Lula da Silva.

 

How does this square with his speech to the Arab Islamic American Summit in May, in which he said:

 

"America is a sovereign nation, and our first priority is always the safety and security of our citizens. We are not here to lecture — we are not here to tell other people how to live, what to do, who to be, or how to worship. Instead, we are here to offer partnership — based on shared interests and values — to pursue a better future for us all."

 

The markets are divided on whether this upsurge in tariff rhetoric is just another TACO trade, an escalation, or whether the president will finally put our money where his mouth is. In the meantime, we are getting the usual "a deal any day now" promises from his staff. Judging from this week's market reactions, Donald is the "boy who cried wolf" too often, but there may be something else afoot that explains the market's resilience.

 

 The answer lies in the flow of funds that propel markets in one direction or another, depending on a variety of variables. Readers need to understand that professionals and institutions place their bets on which way the markets are going, like the rest of us, but they also hedge those bets. For professionals, volatility (often a polite term for downside risk) is an extremely important concept that, if not properly hedged, could result in significant portfolio losses and possibly jeopardize your job.

 

Over the decades, an entire industry of funds, known as Volatility Control Funds (VCF), has emerged around the concept of volatility. It is a strategy designed to go long or short based on volatility levels often embedded in portfolios, protecting them from extreme market fluctuations. Class over.

 

For the last few months, the imposition of tariffs has been high on the markets' list of potential volatility events. Witness the stock markets' reaction to President Trump's April 2 announcement of reciprocal tariffs. The "Trump dump" took four days, and the S&P 500 Index fell about 12 percent while the Dow dropped 11 percent. On April 9, Trump announced a 90-day pause, and markets recovered.

 

Since then, VCF funds have been hedging the potential downside to their portfolios by shorting markets to the tune of billions of dollars, ahead of the new July 9 deadline. The higher the markets climbed, the more money was invested in protecting those gains. Last week, President Trump postponed again, this time to August 1.

 

As a result, VCFs must extend their tariff playbook to August. In the meantime, they need to buy back the millions of stocks they shorted over the last 90 days and bring their equity positioning back to neutral. Estimates are that we were looking at $45 billion or more in mechanical demand for equities. This flow of funds is happening regardless of the present valuation of the stock market. It doesn't happen all at once, but at worst, it has kept a floor under stocks this week.

 

In the meantime, we have some important data scheduled for next week. The Consumer Price Index for June is scheduled for release on Tuesday. It will mark a turn in the recent downward trend of the inflation rate. That should come as no surprise to you since I have been warning readers of this turn of events for months.

 

Wall Street analysts have finally twigged to the possibility that the CPI will be higher than expected. Many economists have rushed to ratchet up their expectations for a higher CPI over the last week or two. Many now have higher numbers than my own. In any case, that event poses some risk to the market. It should push bond yields higher along with the dollar.

 

The cryptocurrency markets had a good week. Bitcoin followed the stock market and made a new high at $118,000. Ethereum is also on a tear, as is Solano. I see Bitcoin trading at $145,000 this year. Gold is still trading within a range, but I remain bullish on the precious metals as long as stagflation remains the name of the economic game.

 

 The markets overall have hung in there. The selling pressure in the first half of the week that I had expected was more than matched by the buying demand from the VCTs. As for other potential market movers, I do not expect an interest rate cut by the Fed when they meet at the end of July, so that leaves the inflation data next week, as well as Donald Trump and his tariff threats. My CPI number is plus-2.5 percent while the Street is now at plus-2.6 percent. A hot number could hurt stocks for sure and, if so, send markets down a percent or two.

 

As for President Trump, he remains a wild card. One of the best trading strategies this year has been to buy stocks when they fall because of his tariff threats. Every day this week, he threatened one country or another with higher tariffs. The latest was Canada. He also said he will levy a 50 percent tariff on foreign copper imports. The point is that since markets are at an all-time high, he feels he has room to rattle his tariff stick at the world.

 

As I have advised readers many times over, ignore the noise coming out of Washington. Instead, focus on stocks and sectors that will do well in a stagflation environment domestically, and move more money into overseas markets.

 

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

Congress passed the tax and spending bill, and the president signed it into law on July 4 but traders have already moved on. They are laser-focused on the July 9 tariff deadline. It doesn't look good.

 

As the holiday weekend begins, President Trump warned the nation that he will be sending letters to 10 or 12 countries starting Friday to notify them of the tariff rates they will face as of August 1. He claimed that by July 9, all nations "will be fully covered. They'll range in value from maybe 60 percent or 70 percent tariffs to 10 percent and 20 percent tariffs."

 

Equity futures, which are open on the July 4 holiday for a half-day, indicate that the indexes were down a little over half a percent on the news after gaining a little more than that by Thursday's close. While these letters appear to be an escalation in Trump's trade war, he has also postponed the deadline for tariff implementation once again, until Aug. 1.

 

Given his track record, most traders are looking to the crypto-based prediction market, Poylmarket, to gauge the chances he will follow through. As of Friday, the odds that Trump will remove most of the reciprocal tariffs before the deadline are 56 percent. Look out below, if that doesn't occur. Of course, in the event of a significant sell-off in the stock or bond market, I expect Trump and his billionaire crew to rapidly change their tune on tariffs as they have done in the past.

 

A deal with Vietnam was announced on Wednesday, marking the second such agreement to date. Imported goods from that country will face a 20 percent tariff, while transshipped goods, those shipped from Vietnam, but originating in another country (like China), will face a 40 percent tariff. U.S. exports to Vietnam would not face a tariff. That is good news, but small potatoes (U.S. exports total $13 billion) compared to what we export to other countries in the European Union ($592 billion) or Japan ($79 billion). The president has already said he doubts a deal with Japan is forthcoming.

 

Regarding the passage of Trump's spending bill, aside from the fact (denied by its legislators) that this so-called "beautiful" bill will increase the U.S. debt load by $3 trillion to $5 trillion over time, it will once again be an exercise in redistributing wealth from the poor to the wealthy. Remember, taxes under this bill will remain the same. They just won't go back up because the bill extends the status quo. There are a few minor exceptions, such as no taxes on tips or overtime for some Americans, and seniors receive a break through tax credits.

 

More than two-thirds of the total tax cuts will continue to benefit those with annual incomes above $217,000. Those making $1.1 million or more will garner one-fourth of the tax benefits. However, the real issue for GOP politicians is the spending cuts. The deep cuts in Medicaid and SNAP programs disproportionally impact working-class voters (defined as those without a college degree). 

 

Those are the voters who put both Donald Trump and a slim majority of Republicans in Congress in power. That is the main reason, aside from the cost of the bill, that the GOP, despite their majority in both houses, have struggled to pass this bill.

 

In 2023, Republicans represented 56 of the 100 lowest-income districts in the House. Republicans are counting on Trump's ability to sway the public to disregard the fine print in the bill. We all know why. Republican politicians worry how 20 million or more Americans, who face a deep decline in their social safety-net programs, will feel about their elected representatives come election time. To avoid that, Republicans deferred their most painful spending cuts until after the midterm elections.

 

In the meantime, the pressure on Fed Chairman Jerome Powell to cut interest rates continues unabated. The spate of weaker inflation data, combined with a recent weakening in economic growth, has prompted more players to follow the president's lead in calling for cuts as early as July. The June labor report punctured that narrative. The non-farm payrolls report was an upside surprise, as the U.S. economy added 147,000 jobs, exceeding the 106,000 that economists had expected. That pushed the headline unemployment rate down to 4.1 percent. It suggests that there is no need for a rate cut at this time.

 

My higher-end target on the S&P 500 Index was exceeded this week. As readers are aware, I have been anticipating a bout of profit-taking in July. Next week, we could see a pullback based on Trump's latest tariff threats. A 2-3 percent sell-off in the averages is possible, which may be a chance for the markets to refuel from overbought levels.

 

And yet, I see no real signs that the bulls want to relinquish their hold on the markets. Seasonally, July is a good month for markets, with an average gain of around 2 percent. In addition, the AAII investor sentiment survey is not nearly as euphoric as it should be, given a 28 percent gain in the stock market from its lows.

 

While there is no sure way to predict an interest rate cut in July or another extension of tariff delays after Aug. 1, either occurrence would send markets higher, possibly into what is called a "blow-off top." If so, this could catapult the S&P to 6,350-6,500 in a relatively short time. As such, over the next two weeks, anything could happen so strap in!

 

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.