Major stocks indexes pared back some of last week’s gains, hurt by the ever-changing tariffs policy and warning of a hit to a major chipmaker’s earnings.
The S&P 500 fell 1.5% this week, with the declines led by tech stocks. The consumer discretionary sector and information technology sector were the worst performers, down 3.2% and 3.6%, respectively. Meanwhile, the Nasdaq Composite fell 2.6%.
Despite being a holiday-shortened trading week, there was no shortage of market-moving events. On the tariffs-front, the percentage imposed by the U.S. on China became “further absurd,” rising to as much as 245%. Fundstrat Head of Research Tom Lee isn’t too worried about that number because he believes that this is not a normal market at this moment. “In this post-Liberation day environment, ‘headlines’ not fundamental developments drive market moves,” he said.
Another drag on markets came Wednesday morning when Nvidia said it would record a $5.5 billion charge on its quarterly earnings, after the U.S. asked it to require a license for exporting the company’s H20 processors to China and other countries. Head of Data Science “Tireless” Ken Xuan said during the weekly huddle that he likes that Nvidia Chief Executive Jensen Huang visited Beijing on Thursday to allegedly discuss new chip designs for Chinese customers.
The losses picked up steam later that afternoon when Federal Reserve Chair Jerome Powell warned that tariffs could make it harder for the central bank to address both of its dual mandates of stable prices and maximum employment.
The messaging was undoubtedly perceived hawkishly by investors and President Donald Trump, who said Thursday that the chair’s end of tenure “cannot come fast enough.”
But Xuan said that Powell wasn’t necessarily negative. “It has been the same message delivered by Powell, so nothing new. The Fed is basically in the wait-and-see game, which is fair because there are no clear signs” he said.
Sentiment and momentum, however, remain negative for now. Head of Technical Strategy Mark Newton said that, “it’s not unrealistic to think we’re still going to be choppy, but the bigger picture is that in the second half of the year, I expect it to be much better.”
Chart of the Week
Fundstrat Head of Research Tom Lee likes that the VIX, considered to be Wall Street’s fear gauge, fell to about 30 after surging to 60. Historical data show that the VIX has surged above those levels only two other times. The first was during the financial crisis in 2008 and the second was during the onset of Covid-19 in 2020. Both of those instances were accompanied by stocks rallying furiously afterward. “The fact is—it is wise to buy stocks when the VIX is above 50, and especially when it makes a move back below 50,” Lee said.
Mexico’s Equity ETF (EWW) has reached the highest levels since last October, after this week’s breakout. EWW along with INDA and the Ishares LatinAmerica 40 ETF (ILF) all look like attractive vehicles for those who are growing impatient with US technology
One more chart, courtesy of this month’s Bank of America Fund Manager Survey Investor sentiment. We see bellow that the current level of sentiment is the 5th lowest on record (behind 2001, 2009, 2019 and 2022) This gauge is based on cash levels (which rose to 4.8%, the largest 2 month increase since April 2020), along with Equity Allocation, and Fund Manager Survey Growth expectations.
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