White House Tariff Order on Canada, Mexico, China likely triggers risk-off short-term, but we list 5 reasons this is an "over-reaction" and we would buy the dip Array ( [cookie] => 6649bb-fb35e0-f67c2d-ce85a6-12b6dd [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: Trump is imposing tariffs to stop the flow of drugs and illegal aliens, different than the trade war of 2018.  Thus, while we expect markets to panic, we would buy the dip

Please click below to view our Macro Minute (duration: 5:59).

We are bracing for markets to go risk-off early this week, on the heels of the White House executive order of tariffs for Canada, Mexico and China — but we would advise investors to buy this “fire, ready, aim” panic.

• The reasons we would buy this dip are as follows:
  – first, this is a “drug war” not “trade war”
  – second, DeepSeek R1 is a reminder markets “over-react”
  – third, Jan ISM (2/3) likely shows economy gaining momentum
  – fourth, 4Q24 Earnings season still good, 79% beating
  – fifth, the “January barometer” positive à 89% chance FY gain

• We have listed excerpts of the Executive Order below but the text makes clear this is about the flow of illicit drugs and illegal aliens, not about trade practices. The second paragraph:
  “President Trump is taking bold action to hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.”
• This is a contrast to the tariffs imposed in 2018 during Trump’s first term:
  – January 22, 2018, Trump imposed tariffs on solar panels and washing machines of 30–50%.
  – March 31 2018, Trump imposed tariffs on steel (25%) and aluminum (10%) from most countries
  – June 2018, tariff extended to the European Union, Canada, and Mexico. The Trump administration separately set and escalated tariffs on goods imported from China, leading to a trade war.
• While one might suggest that the end result is the same, there is a difference. The lifting of these sanctions arguably is more flexible. Because this requires the other nations to cooperate on these objectives. To me this is a reason we expect the markets to be less panicked about this.
• There is a lot of Fed speak this week:
  – 2/3 Mon 12:30 PM ET: Bostic Speaks on Economic Outlook
  – 2/3 Mon 6:30 PM ET: Musalem Gives Welcoming Remarks   
  – 2/4 Tue 11:00 AM ET: Bostic Speaks in Moderated Conversation on Housing   
  – 2/4 Tue 2:00 PM ET: Daly Speaks in Moderated Panel   
  – 2/4 Tue 7:30 PM ET: Jefferson Speaks on Economic Outlook, Policy   
  – 2/5 Wed 9:00 AM ET: Barkin Speaks in a Fireside Chat   
  – 2/5 Wed 1:00 PM ET: Goolsbee Gives Remarks at Auto Conference   
  – 2/5 Wed 3:00 PM ET: Bowman Gives Update on Economy, Bank Regulation   
  – 2/5 Wed 7:30 PM ET: Jefferson Gives Lecture   
  – 2/6 Thu 2:30 PM ET: Waller Speaks on Future of Payments   
  – 2/6 Thu 5:10 PM ET: Logan Speaks on Future of Payments
  – 2/7 Fri 9:25 AM ET: Bowman Gives Update on Economy, Bank Regulation   
  – 2/7 Fri 12:00 PM ET: Kugler Speaks on Entrepreneurship, Productivity   

• This is a heavy week for data including Jan jobs and Jan ISM:
  – 2/3 Mon 9:45 AM ET: Jan F S&P Global Manufacturing PMI    50.1e
  – 2/3 Mon 10:00 AM ET: Jan ISM Manufacturing PMI    49.9e
  – 2/4 Tue 10:00 AM ET: Dec JOLTS Job Openings    8000ke
  – 2/4 Tue 10:00 AM ET: Dec F Durable Goods Orders MoM    -2.2%
  – 2/5 Wed 8:30 AM ET: Dec Trade Balance    -$97be
  – 2/5 Wed 9:45 AM ET: Jan F S&P Global Services PMI    52.8e
  – 2/5 Wed 10:00 AM ET: Jan ISM Services PMI    54.1e
  – 2/6 Thu 8:30 AM ET: 4Q P Nonfarm Productivity    1.4%e
  – 2/6 Thu 8:30 AM ET: 4Q P Unit Labor Costs    3.4%e
  – 2/7 Fri 8:30 AM ET: Jan Non-farm Payrolls    170ke
  – 2/7 Fri 10:00 AM ET: Feb P U. Mich. 1yr Inf Exp    3.2%e
  – 2/7 Fri 9:00 AM ET: Jan F Manheim Used Vehicle Index
• The release of the Jan ISM Manufacturing on Monday is important, in our view. The Street is looking for 49.9, or just a tad under 50. We believe this figure could exceed 50 for the first time in 26 months.
• The NFIB Small Biz Optimism Index recently surged from mid-90s to 105 post-election. This arguably moves in tandem/leads the ISM as both were depressed for the past 3 years. Granted, this is before the Feb tariffs announced. But again, this is about drug war not a trade war.
• This is the heaviest week of earnings with 133 S&P 500 companies reporting. So far its been a good season with 79% beating by 5% overall. Some notable:
  – 2/4 after close: AMD -1.69%  GOOG -0.65%  AMGN 1.03%  JNPR 0.22%
  – 2/6 after close: AMZN 0.14%

• Finally, a reason to be optimistic about 2025 is that we got a positive January close. This is the January barometer “as January goes, so goes the year”:
  – The January barometer is as follows:
  – If January positive:
  – Median FY +19%, 89% win-ratio
  – If January negative:
  – Median FY +0%, 50% win-ratio
• Overall, there are six reasons (if Jan 31 close positive) that show 2025 tracking better than our base case:
  – Barometer “first 5 days” positive = 82% win-ratio
  – Sentiment capitulation on Dec to Jan chop = good
  – Inflation tracking “softer” than consensus view
  – Fears of “day 1 tariffs” overblown = USD weaker
  – Cyclicals leading YTD = risk-on signal
  – January barometer “positive” = 89% win-ratio

Bottom line, 2025 is tracking better than our base case. Despite the near-term turmoil from the tariffs being announced, we remain constructive and now see 2025 as less turbulent than we expected. The top sector ideas remain:

• Bitcoin
• Small-caps
• Financials
• Industrials
• Technology

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44 SMID Granny Shot Ideas: We performed our quarterly rebalance on 11/25. Full stock list here -> Click here

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Key incoming data February:

• 2/3 9:45 AM ET: Jan F S&P Global Manufacturing PMI
• 2/3 10:00 AM ET: Jan ISM Manufacturing PMI
• 2/4 10:00 AM ET: Dec JOLTS Job Openings
• 2/4 10:00 AM ET: Dec F Durable Goods Orders
• 2/5 8:30 AM ET: Dec Trade Balance
• 2/5 9:45 AM ET: Jan F S&P Global Services PMI
• 2/5 10:00 AM ET: Jan ISM Services PMI
• 2/6 8:30 AM ET: 4Q P Non-Farm Productivity
• 2/6 8:30 AM ET: 4Q P Unit Labor Costs
• 2/7 8:30 AM ET: Jan Non-Farm Payrolls
• 2/7 9:00 AM ET: Dec F Manheim Used Vehicle index
• 2/7 10:00 AM ET: Feb P U. Mich. Sentiment and Inflation Expectation
• 2/10 11:00 AM ET: Jan NY Fed 1yr Inf Exp
• 2/11 6:00 AM ET: Jan Small Business Optimism Survey
• 2/12 8:30 AM ET: Jan CPI
• 2/13 8:30 AM ET: Jan PPI
• 2/14 8:30 AM ET: Jan Retail Sales Data
• 2/18 8:30 AM ET: Feb Empire Manufacturing Survey
• 2/18 10:00 AM ET: Feb NAHB Housing Market Index
• 2/18 4:00 PM ET: Dec Net TIC Flows
• 2/19 9:00 AM ET: Jan M Manheim Used Vehicle index
• 2/19 2:00 PM ET: Jan FOMC Meeting Minutes
• 2/20 8:30 AM ET: Feb Philly Fed Business Outlook
• 2/21 9:45 AM ET: Feb P S&P Global Manufacturing PMI
• 2/21 9:45 AM ET: Feb P S&P Global Services PMI
• 2/21 10:00 AM ET: Feb F U. Mich. Sentiment and Inflation Expectation
• 2/21 10:00 AM ET: Jan Existing Home Sales
• 2/24 8:30 AM ET: Jan Chicago Fed Nat Activity Index
• 2/24 10:30 AM ET: Feb Dallas Fed Manuf. Activity Survey
• 2/25 9:00 AM ET: Dec S&P CoreLogic CS home price
• 2/25 10:00 AM ET: Feb Conference Board Consumer Confidence
• 2/26 10:00 AM ET: Jan New Home Sales
• 2/27 8:30 AM ET: 4Q S GDP
• 2/27 10:00 AM ET: Jan P Durable Goods Orders
• 2/28 8:30 AM ET: Jan PCE Deflator

Key incoming data January:

• 1/2 9:45 AM ET: Dec F S&P Global Manufacturing PMI Tame
• 1/3 10:00 AM ET: Dec ISM Manufacturing PMI Tame
• 1/6 9:45 AM ET: Dec F S&P Global Services PMI Tame
• 1/6 10:00 AM ET: Nov F Durable Goods Orders Tame
• 1/7 8:30 AM ET: Nov Trade Balance Tame
• 1/7 10:00 AM ET: Dec ISM Services PMI Tame
• 1/7 10:00 AM ET: Nov JOLTS Job Openings Tame
• 1/8 9:00 AM ET: Dec F Manheim Used vehicle index Tame
• 1/8 2:00 PM ET: Dec FOMC Meeting Minutes Tame
• 1/10 8:30 AM ET: Dec Non-Farm Payrolls Hot
• 1/10 10:00 AM ET: Jan P U. Mich. Sentiment and Inflation Expectation Hot
• 1/13 11:00 AM ET: Dec NY Fed 1yr Inf Exp Tame
• 1/14 6:00 AM ET: Dec Small Business Optimism Survey Tame
• 1/14 8:30 AM ET: Dec PPI Tame
• 1/15 8:30 AM ET: Dec CPI Tame
• 1/15 8:30 AM ET: Jan Empire Manufacturing Survey Tame
• 1/15 2:00 PM ET: Jan Fed Releases Beige Book Tame
• 1/16 8:30 AM ET: Dec Retail Sales Data Tame
• 1/16 8:30 AM ET: Jan Philly Fed Business Outlook Mixed
• 1/16 10:00 AM ET: Jan NAHB Housing Market Index Tame
• 1/17 9:00 AM ET: Jan M Manheim Used vehicle index Tame
• 1/17 4:00 PM ET: Nov Net TIC Flows Tame
• 1/24 9:45 AM ET: Jan P S&P Global Manufacturing PMI Tame
• 1/24 9:45 AM ET: Jan P S&P Global Services PMI Tame
• 1/24 10:00 AM ET: Jan F U. Mich. Sentiment and Inflation Expectation Hot
• 1/24 10:00 AM ET: Dec Existing Home Sales Tame
• 1/27 8:30 AM ET: Dec Chicago Fed Nat Activity Index Tame
• 1/27 10:00 AM ET: Dec New Home Sales Tame
• 1/27 10:30 AM ET: Jan Dallas Fed Manuf. Activity Survey Tame
• 1/28 9:00 AM ET: Nov S&P CoreLogic CS home price Tame
• 1/28 10:00 AM ET: Jan Conference Board Consumer Confidence Tame
• 1/28 10:00 AM ET: Dec P Durable Goods Orders Tame
• 1/29 2:00 PM ET: Jan FOMC Decision Tame
• 1/30 8:30 AM ET: 4Q A 2024 GDP Tame
• 1/31 8:30 AM ET: Dec PCE Deflator Tame
• 1/31 8:30 AM ET: 4Q Employment Cost Index Tame

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: