After last week’s tumultuous news, we got a bit of a reprieve this week. Markets regained approximately half of last week’s losses as President Trump announced on Wednesday that there would be a 90-day pause on the tariffs he imposed last week. Investors clearly remain concerned, but hitting the pause button gives us the necessary détente allowing the administration to negotiate with our trading partners and hopefully come to a mutually beneficial agreement. At this point, any news in that direction will be welcomed by the markets. If the past ten trading days tell us anything, it is that trying to time the market is just not possible.
While most of the announced tariffs were put on hold, the glaring exception is China. Earlier this week, President Trump increased the tariffs on China from 34% to 84% and again to 145% today. This will put further pressure on our third largest trading partner, although it shouldn’t come as a surprise since it is among the countries that are responsible for our unsustainable and growing trade deficit. This reminds me of the song by Neil Sedaka called Breaking Up Is Hard To Do. The issue is that China isn’t the backward country from yesteryear. Over the past several decades, with the help of the United States, it has equaled if not surpassed in some instances our own capabilities. Bringing manufacturing back to the United States will not be as simple as it is being made to sound. And resources like rare earth minerals, which China has in abundance and is necessary for our national security, could be hard to source elsewhere outside of Russia. These are complex issues that could take years to resolve.
This leads us to the question of why the administration reversed course this week. While the stock market could certainly be a major influence in the decision-making process, it probably wasn’t the main reason. You may not have noticed since it wasn’t widely reported, but the yield on the 10-year Treasury spiked this week. So what? Well, this is a clear indication that investors, but more likely countries, are selling their holdings of U.S. debt. While the United States has been widely considered a “safe haven” in times of economic stress, both domestic and global, it seems that our safe haven status may be deteriorating. As to which countries may be the culprits, it is believed it could be both Japan and China doing the selling. Both countries are among the largest holders of U.S. paper, and at least in China’s case, it could be an alternate form of retaliation. Spiking yields are significant for many reasons, among which are the rolling over of maturing treasuries ($3 trillion worth in 2025) at higher interest rates and the increased borrowing costs on everything from mortgages to car loans and credit card rates, which are all based on the 10-year treasury.
Next up is earnings season and you can count on it being a wild ride. Just yesterday, Delta Air Lines pulled its full-year guidance, and Walmart withdrew its guidance for Q1. Expect many companies to follow suit as the uncertainty, despite the tariff pause, continues to confound everyone including companies. Additionally, Microsoft announced it is pulling back from data center construction, including a $1 billion project planned for Ohio (that we reported on previously). While the tariff pause is welcomed, uncertainty remains in abundance. I wish I had better news to report, but this is what we’re dealing with daily. Now you know.
Bruce J. Mason, MBA
