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Commentary on tariffs and the consumer will be in the spotlight (0:17) March core CPI forecast to drop to annual rate of 3% (3:27) Bill Ackman calls for tariff delay. (4:46)
The following is an abridged transcript:
Investors can be forgiven for looking at this week with trepidation. Following President Donald Trump’s announcement of new tariffs a risk-off Thursday and Friday saw the biggest two-day rout in years.
The S&P (SP500) (NYSEARCA:SPY) slumped -10.53% over Thursday and Friday, leaving it at 5,074.08 points. That level marks a -17.42% retreat from the index’s most recent record close.
This was the biggest two-day decrease since the S&P slid -13.93% across March 11 and 12, 2020. That crash came during the height of the COVID-19 pandemic and lockdowns across the globe. Going further back to 2008, the S&P notched a -12.42% fall across November 19 and 20, 2008 in the wake of the collapse of Lehman Brothers.
The FT says hedge funds are experiencing their most significant margin calls since the onset of Covid-19.
Major Wall Street banks have demanded additional collateral from hedge fund clients whose portfolios suffered sharp declines in value. Several large institutions have issued their largest margin calls in over four years, reflecting the scale of the market dislocation.
Allianz Adviser Mohamed El-Erian says: “The last few trading sessions were characterized by a significant reduction in levered exposures and index holdings, as well as the sale of winners to fund margin calls and (actual and anticipated) outflows from funds.”
“The lack of an immediate policy ‘circuit breaker’ has amplified the adverse technical dynamics,” he said. “Unsurprisingly, the result has been a generalized and quite indiscriminate hit to asset prices (from stocks to gold), with most correlations converging to one for now.”
“While this has created pockets of value for investors able and willing to stomach significant price volatility, the ‘when’ is a much harder call given the extent of potential de-leveraging still in the pipeline, especially if the direction of travel on tariffs worldwide remains retaliatory rather than de-escalating.”
The big question is whether traders can move past the macro and focus on the micro. As earnings season kicks off, bulls will hope good numbers and guidance, especially on margins, can underscore the health of corporate America. But bears will be listening to earnings call for color on how tariffs and uncertainty are expected to impact operations and whether price hikes will be passed on to consumers.
Earnings kick into high gear on Friday with the banks JPMorgan Chase (JPM), Wells Fargo (WFC), Morgan Stanley (MS) and BNY Mellon (BK) all issue numbers before the bell.
But investors may get better insight on spending from Delta Air Lines (DAL), which reports Wednesday. Airlines have already started seeing the effects of souring consumer sentiment and the JETS ETF (JETS) is well into bear market territory, down 32% from its high in late January.
This past week, Jefferies cut Delta to Hold from Buy warning of depressed corporate spending. Delta lowered its top-line guidance on March 11 and analysts now expected it to report $13.66 billion in revenue for its fiscal first quarter. On the bottom line, EPS of $0.44 is expected with 10 analysts lowering estimates in the past three month and no analysts raising them.
Shares are off nearly 40% year to date.
Also on the earnings calendar:
Levi Strauss (LEVI) and Dave & Buster’s (PLAY) report on Monday.
Tilray Brands (TLRY) and RPM International (RPM) issue numbers on Tuesday.
Constellation Brands (STZ) joins Delta on Wednesday.
CarMax (KMX) reports Thursday.
On the economic front it’s all about inflation. The March CPI is due on Thursday.
The headline is expected to have risen 0.1% on the month, which would bring the annual rate down to 2.6%. The core CPI is forecast to have risen 0.3%, with the annual rate dipping to 3%.
Wells Fargo economists say: “The abrupt change in U.S. trade policy this week will make the March CPI feel like old news (and) the details are likely to prove less encouraging than the headline as the drag from energy goods was fanned by growth concerns. Core goods inflation was already on the upswing and services disinflation remains frustratingly slow.”
“Some household food staples, including egg prices, retreated over the month, but any reprieve for overall food-at-home inflation was likely more than offset by gains in other grocery categories. Even as we forecast headline CPI to come in flat month-over-month in March, the looming effects of higher tariffs looks to throw a wrench in the fight against inflation.”
Meanwhile, the Goldman Sachs economics team says its “rule of thumb is that every 1 percentage point increase in the effective tariff rate raises core PCE prices by about 0.1 percentage point.”
They say tariffs announced year-to-date would raise the U.S. effective tariff rate by 18.8 percentage points, which would put the annual core PCE price index on track to jump to nearly 4.7% from the 2.8% print in February.
In the news this weekend, Pershing Square Capital’s Bill Ackman issued a stark warning about the economic fallout of impending tariffs, urging Trump to delay their implementation to avert a potential recession.
Ackman suggested that Trump’s recent tariff threats, while effective in drawing attention to long-standing trade imbalances, may come at the cost of economic stability if enacted too swiftly.
“One would have to imagine that President Trump’s phone has been ringing off the hook,” Ackman said. “The practical reality is that there is insufficient time for him to make deals before the tariffs are scheduled to take effect.”
And legal pushback is already underway on tariffs.
The Wall Street Journal says that although Congress traditionally holds the power to regulate trade and impose tariffs, it has gradually delegated some of that authority to the executive branch through various laws. Trump is now relying on the International Emergency Economic Powers Act — a 1977 statute typically used for sanctions and asset freezes — to justify the tariff hike. He’s the first president to use it for imposing broad-based import taxes.
Critics argue that the emergencies cited by Trump are not the kind of “unusual and extraordinary threats” the law was meant to address. Legal experts also warn that using the IEEPA in this way could open the door to unchecked presidential control over trade policy.
One of the first legal challenges came last week from Simplified, a small Florida-based company that imports materials from China. It claims the tariffs are unrelated to any legitimate emergency and violate federal law.
For income investors, McCormick (MKC) and Quest Diagnostics (DGX) go ex-divided on Monday, both paying out on April 21.
Dollar General (DG) goes ex-dividend on Tuesday, with an April 22 payout date.
Mastercard (MA) and The Gap (GAP) go ex-dividend on Wednesday. Gap pays out on April 30 and Mastercard pays out on May 9.
Oracle (ORCL), Salesforce (CRM) and heavy hitter AT&T (T) go ex-divided on Thursday. Oracle pays out on April 23, Salesforce pays out on April 24 and AT&T pays out on May 1.
And in the Wall Street Research Corner, PIMCO co-founder Bill Gross said investors should stay away from buying the dip.
The investor and retired fund manager said in an email that investors should not try to “catch a falling knife.”
“This is an epic economic and market event similar to 1971, and the end of the gold standard except with immediate negative consequences,” he said.
Gross says this tariff-related selloff was “a deep market event” that has little resolution in sight. He adds that President Trump “can’t back down anytime soon. He’s too macho for that.”
He also said he sees opportunities only in domestic stocks that could provide relatively safe dividends as interest rates fall. He named AT&T (T) and Verizon Communications (VZ), but “even with these, be careful, they are approaching ‘overbought’ territory.”
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