Trump's Trade-War Redux
There's a 'disturbance' in the market... Seeking the 'middle ground'... New tariff signals and a familiar path... The latest on the jobs market... Who blinks first?... The benefits of not panicking...
'A little disturbance' is OK...
So said President Donald Trump during his speech last night to a joint session of Congress. He was talking about tariffs and was clearly acknowledging the reaction to new U.S. levies on Mexican, Canadian, and Chinese goods earlier this week.
"Tariffs are about making America rich again and making America great again. And it's happening, and it will happen rather quickly," Trump said, before adding, "There will be a little disturbance, but we're OK with that. It won't be much."
It won't be much. That was an ad-lib from Trump, but it's emblematic of a really important line to note if you're trying to navigate the market right now: Trump is sensitive to daily market performance, probably more than any president in recent memory. (If you have other nominees, let us know.)
Trump has frequently used the stock market as a barometer for American success in the past... And, if you are to believe Treasury Secretary Scott Bessent, Trump is watching the 10-year Treasury yield, too – to see how the market is responding to his policy ideas and impact, particularly on inflation and growth expectations.
We wrote about this back on February 6 and quoted Bessent, who said in a TV interview that all was looking good as Treasury yields were coming down...
Despite the growth estimates going up, the 10-year is coming down because I believe the bond market is recognizing that energy prices will be lower, and we can have non-inflationary growth.
The idea being, he continued, "We cut the spending. We cut the size of government. We get more efficiency in government, and we're going to go into a good interest-rate cycle," meaning steadily lower interest rates from the Federal Reserve. That's the ideal story.
But as we also wrote that same day...
Of course, you don't want yields going too low too fast, either... because that means other things, like deteriorating expectations for growth and even deflation.
In the past few weeks, the major U.S. stock indexes have fallen... with the S&P 500 down about 5% from an all-time high on February 19. The postelection "Trump bump" was completely erased as of yesterday's close.
And Treasury yields have dropped, too – as a result of lower growth expectations amid tariff concerns, as we pointed out in Monday's edition. The 10-year Treasury yield, for example, fell about 60 basis points from January 14 through yesterday.
A "little disturbance" indeed, and it is OK for now.
And it also sounds like Trump is now seeking to soften the impact of a tariff war on the economy and markets.
New signals and a familiar story...
After yesterday's market close, Commerce Secretary Howard Lutnick went on Fox Business and spoke about meeting "somewhere in the middle" with Canada and Mexico on tariffs. According to Lutnick, he was talking with officials from both countries all day.
It was the first sign we saw of a compromise on the tariff front since a full-fledged delay was put in place last month. Then, today, the White House announced a one-month exemption for U.S. automakers importing from Mexico or Canada.
The major U.S. stock indexes rose on the news this afternoon. The benchmark S&P 500 closed more than 1% higher today, and longer-term Treasury yields rose some, too.
This development shouldn't come as a shock to people who are old enough to remember the similar trade war with the U.S.'s North American trading partners and China during Trump's first term. And it'd be wise to remember what happened back then...
In fact, so far, the market is behaving nearly exactly the same this time around... Check out this chart shared by Lance Roberts, the chief investment strategist at RIA Advisors, on the social platform X...
The white line represents S&P 500 futures from March 2019 to November 2019, with notations for Trump calling off a 25% tariff with Mexico and when negotiations with China began. The red line represents S&P 500 futures so far this year.
We will see what events occur over the next few days, weeks, and months. But I (Corey McLaughlin) suspect it will be more "middle ground" from here. After all, there's a line somewhere between implementing tariffs (and/or austerity measures) and dragging the economy into a recession.
Meanwhile, a new jobs report says hiring dipped last month...
We've had our eye on the labor market for a while now... It's an important gauge of the health of the economy, and "maximum employment" is one of the Fed's dual mandates, with "stable prices" (low inflation) being the other.
We're in a significant week for labor-market data, starting with this morning's private-payrolls report from ADP. Every month, the payroll processor shares an update on trends among private employers.
In February, companies added 77,000 workers, according to ADP's report.
That was well below the Wall Street consensus estimate of 148,000 additions and the 186,000 jobs added in January. It was the lowest level of private-sector hiring in seven months. And the numbers could very well be another impact of tariffs... The trade, transportation, and utilities sector lost 33,000 jobs in February.
We've noted the "frozen" labor market in previous Digests. Folks aren't leaving their jobs, and businesses are slowing down hiring. That's leading to longer and longer times for unemployed Americans to find jobs.
It looks like many businesses are still in wait-and-see mode when it comes to hiring new workers, as ADP Chief Economist Nela Richardson says...
Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month. Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.
There's more to come in the jobs market in a few days...
On Friday, we get the government's nonfarm payrolls report and the unemployment rate for February.
The ADP isn't an exact match for the government's data set to come out later this week. But given the volatility and uncertainty surrounding the economy, and the data we've already seen about February (such as rising initial jobless claims), we expect further signs of weakness.
Who blinks first?...
More labor data like today's could mean the Fed has to step in to support the economy – meaning interest-rate cuts. That's what markets are betting on...
According to the CME Group's FedWatch tool, fed-funds futures traders are now predicting three rate cuts by the end of 2025. And markets are now pricing in a higher chance of six (!) rate cuts rather than no cuts at all this year. Just three weeks ago, this same group of traders were only pricing in one rate cut.
But the Fed might not give the market what it wants – at least not as soon as its next policy meeting this month, on March 18 and 19.
Over the past week, several regional Fed presidents have spoken about not wanting to cut rates too quickly. And they haven't been focused on the job market. Instead, they're worried about a second wave of inflation.
As Richmond Fed President Thomas Barkin said last week...
It is critical that we remain steadfast. We learned in the '70s that if you back off inflation too soon, you can allow it to reemerge. No one wants to pay that price.
In short, the market wants and is expecting more rate cuts eventually. But what we're hearing from the Fed is that the central bank is also in wait-and-see mode. We suspect they still will be by the time of their next meeting in two weeks.
We'll see the release of February's consumer price index ("CPI") data next week. The Cleveland Fed's CPI "Nowcast" estimates an annual inflation rate of 2.8% in February, down slightly from the 3% annualized reading in January.
If we get prolonged weakness in the labor market, the Fed may be forced to act – no matter what happens with inflation. But right now, the market looks set for disappointment if expectations for rate cuts don't materialize.
This is another uncertainty for investors to consider. But it's also not a reason to panic.
Speaking of that...
Stansberry Portfolio Solutions subscribers received their latest updates in their inboxes last night...
The headline of this month's The Quant Portfolio issue is "Everyone Is Panicking... Except Us." Why? Well, as Director of Research Matt Weinschenk wrote, the system behind the portfolio is working quite well...
We're ripping ahead of the market for the second month in a row...
Since our last issue, we've returned 2.3% while the market fell 2.3%. That's on top of January's performance, where we returned 3% versus the S&P 500's 0.4% gain.
Now, not every holding in the model portfolio was up. But once again, diversification of the investments outside of popular mega-cap holdings made a difference in performance versus the "market."
(We discussed this point in a different way yesterday, writing about how the equal-weight S&P 500 Index has held up better than the market-cap-weighted U.S. benchmark during the recent run of market volatility.)
Some of the brightest performers in The Quant Portfolio last month were consumer staples stocks, which we've noted are typically "defensive" plays and have been rallying lately. As Matt wrote last night...
We've said before that we don't want to dwell too much on the performance of a single month. We're more focused on how our portfolio performs over the long term.
But in months like these, with the market showing signs of weakness, it's clear that our portfolio is performing exactly how it should. It's providing us with safer, more reliable, and better returns.
Existing subscribers and Stansberry Alliance members can find the latest updates and The Quant Portfolio recommended allocations here.
Similarly, The Total Portfolio outperformed the market as well last month, up 2%. Subscribers can find the latest updates here. And The Forever Portfolio allocation (here, for subscribers) was down slightly... but less than the S&P 500.
Lastly, if you missed Greg Diamond's live video today, you're not too late...
You can watch a replay here. Greg, our in-house technical analysis expert and editor of Ten Stock Trader, ran through a bunch of charts and outlined why he thinks the current "correction" is near the finish line.
He took viewer questions live, too. Check it out... and please, to get more free videos from our team as soon as they are available, be sure to subscribe to our Stansberry Research YouTube page. Go here and click the big "subscribe" button now.
New 52-week highs (as of 3/4/25): Alpha Architect 1-3 Month Box Fund (BOXX) and Roche (RHHBY).
In today's mailbag, feedback on yesterday's edition and on the letter from Canada in yesterday's mail... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Major plaudits to J.J. I, for one, totally believe and am sympathetic with your position." – Subscriber Sherwin R.
"Thank you for printing the voice of reason re: Trump & tariffs from J.J., the Canadian subscriber." – Subscriber Chuck W.
"The comments from subscriber J.J. are right on. Well put. I am a longtime subscriber to various Stansberry publications, am Canadian with U.S. family in Pennsylvania, Maryland, Ohio, Alaska, Virginia and Puerto Rico. Almost every other Canadian I speak to whether Conservative, Liberal or with New Democratic Party leanings is angry and appalled at the disrespect Trump has for Canada. I do recall 9/11 when US flights were grounded in Newfoundland, and everyone was welcomed as friends by the Canadians. Canada was golden then." – Subscriber S.H.
"We the People of the United States of America elected President Trump to put America first. That includes when dealing with Canada... I suspect that both sides will come to an agreement that benefits everyone, and we will move on. We are very thankful for President Trump for putting America, and American taxpayers first." – Subscriber Ted T.
"The typical-American lack of respect and regard for our closest and best Neighbor by using the inappropriate and inadequate title of 'governor' to describe Prime Minister Justin Trudeau revealed to me that you are stupid, unprofessional, [etc.]... YOU are the problem with this country." – Subscriber Kim P.
Corey McLaughlin comment: Me? I beg to differ. You've got me confused with someone else. What you're referring to is a quote from the U.S. president. I called Trudeau the prime minister.
All the best,
Corey McLaughlin with Nick Koziol
Baltimore, Maryland
March 5, 2025