Wednesday's release of the nation's first-quarter Gross Domestic Product stunned investors since it was the first quarterly decline in the economy since 2022. Looking beyond the headline number, however, the results told a different story.

 

At first blush, the minus-0.3 percent decline in GDP sent stocks lower, with the NASDAQ down 3 percent on the day at one point. The culprit behind the numbers was a 41.3 percent rise in imported goods and services. If we import more than we export, as we did substantially in the quarter, the economy's growth decreases.

 

The surge in imports began after the November 2024 elections and continues today. These higher imports result from President Trump's intention to levy tariffs on all our trading partners. U.S. corporations have been scrambling to get ahead of these tariffs by ordering products before the deadline. Trump's second 90-day reprieve has only heightened the trend toward importing even more goods from overseas.

 

The decline in GDP  was also the first substantive instance where the "hard" economic data matched so-called soft data. Over the last three months, the University of Michigan sentiment numbers, the AAII Institutional investor surveys, and consumer confidence polls have indicated that investors and consumers are growing steadily more negative about the economy and market.

 

The president was quick to cast the blame for the disappointment on the prior administration, although, to my knowledge, neither Biden nor candidate Harris had any intention of waging a tariff war. He also indicated that if the economy weakens in the second quarter, he will blame Biden again.

 

However, if the president had just looked under the GDP hood, he might not have been so quick to duck the blame. If you strip out the import data, the economy grew by 3 percent. Private business investment was up while government spending fell. Business equipment and machinery investment rose 22.5 percent. That is a powerful upswing.

 

The Trump administration could have taken credit for that result. Trump promised that when Congress passes his "One Big Beautiful Bill," he would give business and factory investment a 100 percent immediate depreciation write-off retroactive to Jan. 20, 2025. That means the cost of these purchases would be tax-deductible in year one instead of being stretched out and deducted over the life of the equipment. How much of those purchases were related to avoiding tariffs and how much was a genuine willingness to invest in America will likely show up in the data in the months ahead.

 

In addition, the Fed's favorite inflation indicator, the Personal Consumption Expenditures Price Index (PCE), came in weaker than expected, indicating that inflation has not increased, at least for now. I expect April's Consumer Price Index to be weaker still.

 

Jobs, on the other hand, is a different story. U.S. jobless claims rose to a nine-month high, but Friday's non-farm payroll employment report drew the market's attention. The number beat estimates, coming in at 177,000 jobs gained compared to 138,000 expected. That helped markets rise to top off a good week of gains.

 

Some on Wall Street are betting that a weaker economy, steady inflation, and the threat of rising unemployment might be a sufficiently worrisome combination for the Fed to alter its wait-and-see point of view. The bond market has upped its probability that the Fed will cut rates at least four times this year. It could provide cover for Fed Chair Jerome Powell to give in to the president's continued pressure to cut interest rates now instead of waiting. 

 

Last week, the market could continue to rally, providing quarterly earnings came in better than expected. Fortunately, that is what happened. We have made progress. I could see 5,700-5,750 before a pullback occurs on the S&P 500 Index. That is a mere 50-100 points away.

 

In the meantime, my warning to wait before chasing gold proved to be the correct call. I expected at least a 10 percent correction in the yellow metal, which would take the price down to $3,150.

 

For markets to continue their recovery, we need to see the following. A peace deal, the tariffs disappear, China and the U.S. come to a trade agreement, the Fed cut rates, and/or no recession. That's a long list, so let's say just two of the above need to happen for further gains.

 

A June Fed cut is a good bet, and China said on Friday that it is at least willing to talk to the U.S. on trade at this point. A Russia/Ukraine deal and/or a U.S. recession remain a 50/50 bet. I am afraid some tariffs are here to stay. If none of the above occur, we remain in a 500-point trading range (5,200-5,700) on the S&P 500. Until these issues are solved, we remain Trump-dependent. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This week, statements from the president and his treasury secretary indicating a possible thaw in relations with China triggered a bout of FOMO among traders. Markets gained more than 6 percent for the week on a hope and a prayer. Was it justified?

 

On Monday, investors woke up to President Trump calling Fed Chair Jerome Powell "a major loser." That triggered fears that Trump was on the verge of dismissing the head of the U.S. central bank. Markets appeared to be once again rolling over. The stock market cratered.

 

By the end of the day, markets were off by more than 2 percent. It looked as if stocks were ready to roll over and at least re-test if not break the recent lows. Since the U.S. relationship with China was also worsening and with no other tariffs deals insight, traders were positioned for further declines on Tuesday.

 

However, cooler heads prevailed within the Oval Office. Treasury Secretary Scott Bessent and Commerce Chief Howard Lutnick, both Wall Street pros, intervened and worked to convince the president to tamp down the rhetoric. The last thing the administration needs right now is more turmoil in financial markets, they argued. Lo and behold, by Tuesday morning the president announced that he had "no intention of firing" Powell. A day later both Bessent and Trump changed their tune over sticking it to China.

 

Last week I wrote that "I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets." We saw that this week.

 

By mid-week, Trump assured the markets that the tariffs on China would "come down substantially," and his negotiations with China would be "very nice." Secretary Bessent chimed in. He expected a de-escalation in the trade war with China, which he said was unsustainable. Both men claimed that talks were ongoing with the Chinese.

 

I noticed a lot of "may do this and may do that" but no "we will do this" in their conversations. To me, the flow of positive statements was an obvious ploy to talk markets higher and it worked. The war of words with China, however, plays both ways.

 

China's Ministry of Commerce released a statement denying talks were being held. "At present, there are absolutely no negotiations on the economy and trade between China and the U.S." The Chinese authorities insisted that before substantive talks can take place, U.S. tariffs must be rolled back. And yet, China is considering exempting tariffs on some U.S. goods shortly.

 

As this drama unfolds, the markets are betting Trump will roll back his tariff war and that his bark is worse than his bite. In addition, many think that as Trump continues to pressure Powell to lower interest rates, at some point he will if the economy falters.

 

Despite the headline risk, corporate earnings are better than expected although only 34 percent of the S&P 500 have reported so far. Google, the first of the Magnificent Seven to report beat on earnings and sales, which heartened tech investors. The remaining mega-cap companies are scheduled to report this coming week.

 

Financial markets continue to be held hostage by the headlines. Over the last two weeks, the president has softened his stance on the tariff front. The 90-day reprieve on reciprocal tariffs and the intention to exempt some U.S. sectors from the worst fallout have relieved investors of their worst fears. A soon-to-be-announced tariff deal with India should also help sentiment.

 

Do the recent stock market gains indicate that we are out of the woods? Remember that the biggest rallies happen during bear markets and some of these rebounds can be breathtaking. The S&P 500 Index had eleven 10 percent rallies during the Financial Crisis and still lost 57 percent over a year and a half. At the turn of this century, during the Dot.Com bubble, the same index chalked up seven rallies that averaged 14 percent but still lost 49 percent over two and a half years.

 

The S&P 500 Index has gained roughly 7 percent this week. Compare that to a 9 percent return per year, which is the long-term average for the S&P 500, so these returns over a short period of time are astounding. And almost every time these bounces occur, investors convince themselves that the bottom is in only to be handed their heads in subsequent downturns.

 

At this point, there is simply too much uncertainty ahead for me to call an "all clear" in the markets. We could see a bit more upside into the beginning of May provided earnings continue to come in better than expected. But I would need to see another 200 points tacked onto the S&P before changing my tune. In the meantime, if you have discovered that your risk tolerance is not as accurate as you thought, take the time to adjust your investments to a more defensive stance.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

On Thursday, investors hoped that Fed Chair Jerome Powell, speaking in Chicago at the Economic Club, would assure markets that he would backstop any downside from President Trump's policies. They were disappointed.

 

Even worse, he said, "The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth."

 

The fact that the leader of the world's most powerful central bank seemed to confirm the worst fears of investors triggered another $1 trillion sell-off in equity markets. The president quickly posted his displeasure at the central banker's comments on social media stating that "Powell's termination cannot come fast enough!"

 

All week, traders monitored every word coming out of the White House. Their algo programs immediately translated any news into buy and sell programs. That vaulted markets up or down in seconds with billions of dollars riding on words like "maybe," "positive," "unhappy," etc.

 

The typical retail investor is no match for this kind of volatile trading. Those who try are chopped up in pieces. Adding to the tariff tensions, the first quarter earnings season is underway. Just about every analyst is expecting earnings estimates to go lower and many companies to pull yearly guidance.

 

While the big banks reported good earnings, the number one market stock, AI semiconductor darling, Nvidia, surprised the market by announcing a $5 billion charge to income due to the government's future restriction of its popular H20 chip sales to China. That sent the stock price of Nvidia down by 10 percent overnight.

 

At the same time, the Trump administration increased China tariffs again to 245 percent. It also revealed that it is negotiating with 70 countries to disallow China to transship its goods to the United States. None of that seemed to phase Chinese internet stocks which gained more than 1 percent on the news.

 

Overall, market participants have still not given up their buy-the-dip mentality even though the markets' fundamentals and the economy are steadily deteriorating. The market trades at a market multiple of 23 times earnings right now with earnings for the year forecasted to rise by 10 percent.

 

If economists and the Fed are right, and the economy slows while inflation rises, does this kind of valuation make sense? If we experience a two-quarter recession this year, history tells us that a mid-teens earnings ratio would be appropriate. If so, we have not seen a decline in the lows in this market.

 

Investors, however, are hoping that at any moment, the White House will announce breakthrough deals with several countries. I believe there is a concerted effort by the administration, after the major meltdown of two weeks ago, to provide a continuous stream of positive, short-term narratives on deals they are negotiating to support markets. This week, Japan topped the list of "positive" meetings trumpeted on social media, while the lack of progress on the European front was not mentioned.

 

One of the only places that investors have been able to see gains is in gold and silver mining stocks. As readers know, I have been positive in this area for months, but I would caution those with a bout of FOMO to resist the temptation to chase these investments right now. This is a crowded trade in need of a serious pull-back before considering new purchases.    

 

Where does that leave us in the overall markets? Hoping for a breakthrough is not an investment strategy, nor is waiting for another 9 percent one-day market spike. We are all Trump-dependent and will continue to be. The longer these tariff negotiations take, the lower the markets will go.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This week, the stock markets had one of their largest single-day rallies since 2012, after President Trump suddenly put some of his tariffs on hold for 90 days. He then gave back half of it the following day. Investors wonder if this was a bear market bounce or if it could mean something more.

 

Media sources are crediting the market melt-up to various factors. Some believe Trump decided to soften his stance on tariffs after spending the weekend huddled with his U.S. Treasury Secretary Scott Bessent. Bessent, who the business community believes is a voice of reason in a room full of tariff advocates, had urged the president to pause his reciprocal tariff deadline. He believes foreign nations, given more time, could come to the negotiating table with even better deals benefiting the U.S.

 

He may have a point since few of our trading partners understand the math behind these reciprocal tariffs. Are they about fentanyl, existing tariffs, hidden taxes and other barriers to American imports, their specific trade deficit with the U.S., or all the above? If it is only about reciprocal tariffs, then reducing one's tariff (as Vietnam already offered to do) is simple.

 

It is a different kettle of fish if, instead, Trump is demanding a total reduction of each country's trade deficit with America. That could involve passing legislation to reduce value-added taxes in some cases. In others, it might require far-reaching legislation to undo protectionist measures defending domestic industries for many countries. That would involve developing a consensus among several political parties that share power in governments. It may even require, in some instances, a referendum requiring a popular vote.

 

In any case, before this pause, a growing number of Wall Street research houses were not only ratcheting down their targets for the S&P 500 Index but also raising the probability that Trump's tariff policies could cause a recession this year.

 

Some believe the president was forced to announce a pause in the tariff schedule. Bond traders believed the fixed-income market in the middle of the week was coming unglued. On Wednesday night, the prices of U.S. Treasury bonds plummeted as foreign investors, especially in Japan, were dumping their holdings while the U.S. dollar plummeted.

 

Determining why treasury bonds, a haven in times of distress, experienced such sharp price declines is difficult at best. Who were the sellers? We know China is the second-largest holder of U.S. Treasury bonds after Japan. We also know that the only exception to Trump's reciprocal tariff pause was China. At this point our tariffs on China total 145 percent. China, on the other hand, has moved its U.S. tariff rate to 125 percent.

 

It could be that China is now reducing its holdings of our sovereign debt in response to the U.S. tariff threat. And this China/U.S. tariff war may continue. Charles Gasparino of Fox Business posted on X that the Trump administration is moving toward a possible delisting of Chinese public company shares on U.S. exchanges. If so, Chinese stocks listed here, are ignoring that possibility.

 

A better bet could be that the so-called "yen carry trade" may be unraveling. For decades, traders would borrow yen, exchange yen for dollars, and then invest those dollars into assets that could give them a better return (like U.S. stocks). However, the Japanese stock market has declined along with U.S. markets, while the yen has strengthened considerably against the dollar over the last few weeks. Some clients of large global financial institutions trying to unwind their yen carry trade could be in trouble.

 

How all these variables play out in the stock market is like putting together a jigsaw puzzle with missing pieces. Investors are so focused on this tariff issue that good news, like the cooler-than-expected data from both the Consumer Price Index and Producer Price Index, were largely ignored. So too was the approval of a budget plan in the House that reflects the president's agenda.

 

After this week's monumental bounce, some hopeful bulls believe the bottom is in. Others say that the extraordinary bounce in the averages is a classic sign of a bear market. They point out that if history is any guide, some of the biggest upswings in stocks occur in bear markets. If so, a 10-15 percent spike in the averages could happen at any moment depending on the president's next tweet on Truth Social. To me, until we see a successful conclusion to the tariff issue, which could take several months, I believe any rally would be an ideal time to trim portfolios and get more defensive.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Stocks fell to kick off the second quarter following the worst quarterly performance for equities in the past three years. The culprit was Wednesday evening's "Liberation Day" announcement of tariffs far worse than the markets expected.

 

By now, most readers know that the president not only levied a 10 percent tariff on all nations across the board, but he also added reciprocal tariffs to that total on individual nations. China was signaled out for the harshest treatment with a combined 54 percent total round of tariffs. In response, China announced 34 percent tariffs on U.S. goods.

 

As I warned readers last week, these tariffs would be "extensive, explicit and enforced."

 

The announcements have triggered a two-day sell-off in equities around the world, but it is the U.S. stock markets that are bearing the brunt of the losses. Over $3 trillion was wiped off the value of the S&P 500 Index thus far. Some investors found that confusing since the assumption was that these tariffs would hurt foreign markets far more than our own and were nothing more than a bargaining chip.

 

Neither assumption is true. This year's market decline should not be dismissed as a mere blip in a bull market. To be clear, this is not just a correction, it is a confirmation and a direct result of a significant regime change. It is a shift in our political and economic system which I have been writing about for years.

 

The present tariff actions are the latest manifestation of this shift. We the people will be the victim of this tariff war at least in the short to mid-term. The architects of this event, starting at the top, have repeatedly warned us that not only has the game changed but a period of discomfort, pain, detox, or whatever you want to call it is to be expected. It is a case of short-term pain for long-term gain.

 

One only needs to do the numbers to realize it is the American consumer and corporations who will bear the brunt of these tariffs. Some consumers are already stocking up on household items in preparation for shortages and price hikes. Tariffs, despite the president's denial, are a tax on those who purchase imported goods. Trump's chief trade adviser, Peter Navarro, said this week, "tariffs are going to raise $600 billion a year, about $6 trillion over a 10-year period."

 

That money is coming straight out of corporate profits. If instead, companies pass on those added tariff costs to you, the consumer, you are on the hook for this new tax. It will cost the average American family between $3,800 and $4,600 annually. Whether you call it a tariff, or a tax is all the same to me.

 

That money will go directly into the government's coffers. It will hit the working class the hardest — dropping disposable income by 2.3 percent. This will be the steepest tax increase since 1951. This kind of sudden shock to the system will have an immediate impact on all the metrics that comprise the state of the economy. Inflation will rise. Economic growth will slow. Unemployment will increase. The dollar and interest rates will fall. And financial markets, in turn, will reflect that by declining as well.

 

And this is not the only shock the U.S. may endure. We have yet to hear from three of our largest trading partners, Europe, Japan, and Korea. Will they follow China and retaliate, do nothing, or negotiate? Depending on their response, will President Trump escalate the tariff war or reduce tensions?

 

Could Trump's tariffs cause a recession? That depends on what is negotiated by whom and for how long. It seems clear that whatever happens, this trade crisis will be with us for some time. The clock will be ticking while we wait. The longer it lasts, the higher the probability of recession.

 

In the meantime, congratulations to the Trump team for accomplishing some of their objectives in record time. Treasury Secretary Scott Bessent had made it clear a month ago that Trump wanted the ten-year U.S. Treasury bond yield lower and oil prices down. Given the 16 percent decline in oil prices over the last two days and a bond yield of under 4 percent, I would say mission accomplished. Of course, equity markets had to go into free fall to accomplish that, but neither Trump nor Bessent seem concerned about what happens to the stock market in the short term.

 

How will stock markets handle this? Look at this week's market action for a clue. The volatility has been through the roof. The S&P 500 Index is now down 16 percent from the highs. I had cautioned that we could see a drop of between 10-13 percent in the S&P 500 Index and maybe even as low as 20 percent. Now what?

 

Could we see further downside, yes, we could,yes but could we also see instead a 10 percent spike higher in the averages in a day or two? Either is possible because the fortunes of the market and the economy are and will continue to be Trump-dependent.

 

Given that the president strives to always be at the center of attention, this situation suits his personality perfectly. Many on Wall Street believe Trump's plan is to force the economy lower for the next nine months while blaming the Biden administration for the decline. At that point, his supply-side efforts such as maintaining the 2018 tax cuts, deregulation, etc., will kick in. That should boost the economy just in time for the mid-term elections — if all goes as planned. If it doesn't, the risk would be a recession.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.