Three Forces Driving the Market Right Now

Tariffs, debt, and rate cuts... The threats are back... $5 trillion more in debt, just like that... The case (again) for 'hard assets'... Eyes are back on the Fed...

Tariffs were back in focus today...

This afternoon, President Donald Trump said the U.S. will impose 25% blanket tariffs on imports from Japan, South Korea, Malaysia, and Kazakhstan… 30% on South African goods… and 40% on imports from Laos and Myanmar.

He also shared pictures on his Truth Social account of letters he sent, starting with those to the Japanese prime minister and South Korean president, and saying these letters are the first of many he plans to send this week.

The move comes as Trump's 90-day "reciprocal" tariff pause is set to expire this week – although the White House has seemingly extended the deadline for countries to reach trade deals with the U.S. to August 1.

The major U.S. stock indexes, which were already trading slightly lower, hit fresh intraday lows soon after Trump's first post and finished down. The benchmark S&P 500 Index, tech-heavy Nasdaq Composite Index, and Dow Jones Industrial Average lost roughly 1%, and the small-cap Russell 2000 Index lost 1.6%.

That makes some sense, as our Ten Stock Trader editor Greg Diamond wrote today to his subscribers when telling them to take profits in two trades...

There may be more trade headlines this week and with the majority of stocks and sectors in overbought territory a correction wouldn't be a surprise.

While volatility picked up some, today's action was a relatively subdued response to the news compared with similar announcements earlier this year, in part because it may just be a continuation of the market brushing off the "worst case" scenarios.

The same, but different...

That's not to say 25% tariffs aren't significant and won't affect the economy in ways we can't completely predict right now.

But today's developments clearly are not as shocking to investors as April's Liberation Day announcement, where Trump held up a chart of tariff numbers – even though the 25% tariff number on Japanese, Malaysian, and Kazak imports is almost identical to the numbers Trump proposed on these countries then... And the tariff on South Korean imports is the same as the 25% originally proposed. (Loas and Myanmar got the biggest breaks, down from 48% and 44% on Liberation Day, respectively.)

I (Corey McLaughlin) suspect the market reaction could be because, based on previous behavior from the White House, today's letters could be seen as another round of "threats"... or a de facto extension of the tariff pause, where final negotiations with countries could go on through at least August 1.

Simply put, investors may not be convinced these high tariffs will happen. Now, that may set up the market for some disappointment. Perhaps today was a start, but it's not a pattern yet.

Still, this situation can't give businesses confidence when they're trying to figure out the impact of tariffs on their bottom lines. The uncertainty is paralyzing.

Last week, we wrote about the realities that a few small businesses have been facing. They're eating the costs of tariffs and aren't sure what's going to happen next. In short, they're near a breaking point of having to pass on costs to consumers. And lingering uncertainty about the cost of imports doesn't encourage economic growth.

However, although it wasn't the case today, any "good" news on the tariff front may be well received by the markets.

As we wrote last week, the markets moved higher after news of a U.S. trade agreement with Vietnam, "perhaps showing that any bit of additional clarity on Trump's trade policy could continue to boost stocks moving forward."

We'll have to wait and see.

The 'big, beautiful bill' is settled...

One of the reasons tariffs are seemingly at the top of the White House's to-do list again is because Trump signed the "big, beautiful bill" into law during a July Fourth ceremony.

Not everyone may have been happy with the outcome. (Elon Musk was the most prominent figure. He announced the launch of the "America Party" in response to the bill passing.) But it was just what Trump wanted.

In broad strokes, the bill is an extension of the tax cuts from Trump's first term... plus various other new tax cuts... $150 billion in new defense spending, including the "Golden Dome"... and another $170 billion for border enforcement and deportations. It also includes rolling back "green" energy initiatives... all while making significant cuts to Medicaid and some government agencies.

The price tag? Raising the debt ceiling by a cool $5 trillion.

On it goes...

To which we say, keep holding those "hard assets" and high-quality stocks that will protect against inflation because that concern is not going anywhere.

Juice is in demand...

As we've been writing lately, expectations are growing for the Federal Reserve to cut interest rates later this year.

As of today, federal-funds futures traders think there's a 66% chance the central bank will lower rates by its September meeting, and an 86% chance it will do it by October.

That's probably because Fed Chair Jerome Powell has started to signal as much... and there are also growing expectations for a generally lower rate environment once Powell's term as chair ends in May 2026 and Trump replaces him.

Of course, this shift is coming as the unemployment rate dropped to 4.1% last month and stocks are near all-time highs.

Rates coming down in an already juicy environment could be a recipe for asset prices (and the pace of inflation) to move higher. However, like with the tariff situation, "bad news" in rate-cut expectations could dampen the market in the near term.

Stansberry's Investment Advisory lead editor Whitney Tilson had more on the latest jobs report and the current market backdrop with stocks, home prices, bitcoin, the money supply, and national debt at or near all-time highs in his free daily newsletter today. Whitney said...

In light of these factors, it makes no sense that the Fed would cut rates. The Fed typically only does so when inflation is low and the economy is weakening – so I expect that it will not cut rates so aggressively.

So, apart from trade agreements over the next month, another key date to watch is July 30. That's the date that the Fed's next policy meeting concludes... and we'll hear from Powell at the podium for the first time since Trump's handwritten note to him (more on that below).

Traders aren't expecting the Fed to make a move on rates at its meeting later this month, but Powell's message could go a long way to determining the market backdrop heading into the back part of 2025.

New 52-week highs (as of 7/3/25): Ansys (ANSS), Atour Lifestyle (ATAT), American Express (AXP), Alpha Architect 1-3 Month Box Fund (BOXX), Dimensional International Small Cap Value Fund (DISV), iShares MSCI Emerging Markets ex China Fund (EMXC), iShares MSCI Spain Fund (EWP), Cambria Emerging Shareholder Yield Fund (EYLD), Cambria Foreign Shareholder Yield Fund (FYLD), Honeywell International (HON), iShares Convertible Bond Fund (ICVT), JPMorgan Chase (JPM), Kinross Gold (KGC), Microsoft (MSFT), Neuberger Berman Next Generation Connectivity Fund (NBXG), New Gold (NGD), Ormat Technologies (ORA), Sprott Physical Silver Trust (PSLV), ProShares Ultra Technology Fund (ROM), Sandstorm Gold (SAND), Sprott (SII), TransDigm (TDG), Telefônica Brasil (VIV), Vanguard S&P 500 Fund (VOO), and Industrial Select Sector SPDR Fund (XLI).

In today's mailbag, feedback on Keith Kaplan's Masters Series essay from Saturday, which touched on the recent war between Israel and Iran (and how he's navigating an "absolutely chaotic" market this year)... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"This is exactly why we need to promote the use of 'SAFE' SMRs [small modular reactors]. America should not be buying Middle East oil. We don't need to. We can get all, or almost all, of our energy needs from SMRs. The balance can be acquired through our own oil & gas production. Case closed, problem solved." – Subscriber S.L.T.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
July 7, 2025