Every new headline sends markets this way, with traders caught between a rock and a hard place. Geopolitics, tariffs, and economic data need to play out over the next two weeks before a clear direction unfolds.

 

The Iran/Isreal conflict remains in the shooting stage, with both countries rapidly depleting their store of missiles and air defenses. It seems the TACO (Trump always chickens out) trade can also be applied to warfare. Markets fell as President Trump talked tough, threatening Iran with bunker-busting bombs unless the country surrendered unconditionally.

 

Two days later, on Thursday, while the markets were closed, he announced that he was giving peace a chance. He said he would take two weeks to decide on his next course of action. That gives Iran time to find a diplomatic off-ramp to appease the U.S. on its demand to end its nuclear weapons program. Israel, on the other hand, is moving forward with its attacks on Iran's nuclear facilities despite Trump's decision.

 

The oil and gas markets are fluctuating by several percentage points per day. The dollar has also been climbing, while the traditional go-to safe-haven trade of gold is not working at all. Gold, throughout most of this conflict, has been falling while silver has skyrocketed. This is confounding traders, since the opposite is typically expected in times of geopolitical stress.

 

Cryptocurrencies are experiencing a similar decline to gold, which is no surprise. This underscores the argument that digital currencies are not a safe haven but rather speculative assets with a high correlation to equity markets.

 

The Federal Open Market Committee meeting this week, as predicted, decided to sit tight and see what develops. While some investors were miffed that the Fed did not cut interest rates (as President Trump had suggested), most investors were not surprised. Chairman Jerome Powell made it clear that he needed to see how the upcoming tariffs would impact the economy and inflation.

 

Readers are aware that I am in the stagflation camp. I anticipate inflation will rise throughout the end of the year, accompanied by a slowing economy. That puts the Fed in a box where they are damned if they do, damned if they don't.  Cutting interest rates would heighten inflation, but hiking rates would risk tipping the economy into recession. Sitting on their hands and watching how Trump's tariff and tax bill plays out is the only safe course available to them.

 

And speaking of tariffs,  where are all these deals we were promised? Only one has been inked, and that is with Great Britain, where the U.S. has a trade surplus!  How many times must we be assured they are coming in a week or two?

 

In an interesting progression, investors face a series of make-or-break events divided into roughly two-week increments between now and the middle of July. The decision on Iran will come first, followed by the passage (or not) of the Big Beautiful Bill on or around July 4. That may turn out to be the Big Ugly Bill, depending on who you are, but its passage would be a big boost to stocks for at least a day or two.  And then, we have the implementation of reciprocal tariffs (or not) on July 9th. The market expects that TACO man will kick the can down the road for the second or third time. I am losing count.

 

So, where does that leave the markets? As I said, expect a chop fest. Last week, I narrowed my upside range for the markets based on the outbreak of war in the Middle East. Since then, the S&P 500 Index has gone nowhere. Next week, barring a cease-fire and peace between the two combatants, markets will continue to gyrate based on the latest headlines.

 

That leaves the market's range bound and probably short circuits my hope that we could reach 6,100-6,250 on the S&P 500 anytime soon. Now, don't take that as gospel because events could turn on a dime, propelling stocks higher. I just think that the probability of reaching my former targets has lessened. In July, however, I do expect we will be cruising for a bruising that could pull that average down by 400 points or so. 

 

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.

Stretched, overbought, extended - use whatever word you want, but the market needed a pullback, and Israel provided one.  The markets, displaying remarkable resilience, climbed a wall of worry only to find geopolitical risk at the top.

 

On Thursday night, Israel's bombing of Iranian nuclear facilities precipitated the heftiest decline in weeks. Be assured not everything declined. Oil soared 8 percent. Safe haven bids spiked higher. Gold closed in on record highs, and the dollar rebounded from multi-year lows. 

 

Throughout the week, the markets were beset by negatives, with that wall of worry stretching higher and higher. The markets simply shrugged off the negatives while inching higher. Riots in LA couldn't phase the markets. Stocks, despite two days of tension over the outcome of the China-U.S. talks in London, remained firm. Fears around a mid-week U.S. 10- and 30-year bond auctions were taken in stride by investors. Not even the results of the latest inflation data could deter investors from buying stocks

 

And while that wall of worry stretched higher and higher, most of those bricks turned out to have a somewhat happy ending. The protests are still ongoing and have spread to various cities, but demonstrations over the administration's immigration policies have been peaceful for the most part. The China talks ended with both parties announcing a 'framework' for further discussions. That was better than both sides storming out of the talks, but progress toward a real trade agreement remained elusive.

 

This week's Consumer Price and Producer Price Indexes showed no real evidence of tariffs having affected the data. The numbers came in line with my predictions for CPI; month over month, excluding food and energy, rose a measly 0.1 percent.  On an annual basis, CPI rose 2.4 percent, even lower than my 2.5 percent projection for May. The Producer Price Index had a similar result.

 

The last ten-year and thirty-year U.S. Treasury bond auctions went badly, and markets sold off as a result. I suspect that Secretary Scott Bessent did not want a repeat of that circumstance and took steps to ensure a better auction this time. It's called "financial repression," a term used to describe the heavy-handed intervention of the government. Behind the scenes, I am sure the government prodded banks and bond dealers to bid for bonds even when they may not have wanted to. It happens far more often than you might expect. 

 

On the tariff front, the TACO (Trump Always Chickens Out) effect suggests that the reciprocal tariffs scheduled to take effect in a few weeks will be postponed again. Secretary Bessent has already said as much in his testimony before the House Ways and Means Committee this week.

 

The Federal Open Market Committee will meet next Tuesday and Wednesday. I do not expect the members to change their wait-and-see policy despite the president's almost weekly social media posts urging  Chairman Powell to do more. His latest outburst was a social media post demanding the Fed to cut interest rates by 1 percent.

 

I may have to lower my short-term target on the markets depending on the duration and severity of the present turmoil between Israel and Iran. Usually, geopolitical events like this roil the markets for a day or three before returning to normal. However, the Israelis say they are planning a two-week operation to destroy Iran's nuclear capability. If so, that could mean a widening of the conflict and create more volatility in the financial markets.

 

I expected the S&P 500 to hit 6,100 to 6,150 over the next two weeks before a downturn into July. That two-week timetable has just been upended. Technically, markets could still rise, but the probability of the last leg of this move upward has now been substantially lower.  As I wrote last week, "It is a tricky bugger to forecast," and Isreal just made it more so.

 

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.

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.