Daily Commentary

MarketMinder’s View: As always, MarketMinder prefers no politician nor any party. We assess developments, including tariffs, for their economic and market implications only. August 1 is the newest tariff deadline given to targets of the administration’s reciprocal tariffs, which may prove to be a negotiation tool and malleable. But it is also purportedly the deadline for industry-specific or “sectoral” tariffs, including levies on pharmaceutical products, copper, semiconductors and more. This piece details these, including the rumored tariff rates and potential phase-in periods (e.g., a mooted two-year window for pharmaceutical tariffs to ramp up to the threatened 200%). Our stance on tariffs hasn’t changed. We don’t believe they are economically beneficial, and they overwhelmingly hurt the imposing nation hardest by adding costs and interfering with capital allocation. However, markets generally don’t move on whether a policy and its effects are broadly good or bad. They move on the surprise factor and whether reality is better or worse than expected. To that end, this piece claims these sectoral tariffs “will test the calm in financial markets, where investors mostly see Trump’s tough tariff talk as a negotiating ploy prone to delays and de-escalation rather than a prolonged economic headwind.” Maybe, but sentiment on these sectoral tariffs is already pretty negative. We have seen heaps of coverage, most of it pessimistic, with this article’s details one example. Markets pre-price all widely known information, opinions and forecasts. Expectations for these tariffs to go badly are very well known and therefore aren’t sneaking up on markets. That was part of the worst-case scenario markets priced back in early April. We aren’t ruling out volatility, and non-US stocks probably keep outperforming since tariffs aren’t so much a headwind outside the US, but we don’t think there is much material negative shock power here for markets.

MarketMinder’s View: The titular bargain here is value stocks. And since this piece names numerous companies, please note MarketMinder doesn’t make individual security recommendations. We feature this for the broader argument that because large growth stocks (and particularly giant Tech) carry such high valuations relative to smaller companies, small cap’s day in the sun must be nigh. Look, we agree with the broader view that value stocks likely do better from here. But we don’t agree with the logic, and the distinction is important. If valuations mattered, then small value stocks would outperform always. This article notes, clearly, they haven’t. But it doesn’t go far enough, because it doesn’t explore the specifics of when and why large growth stocks generally lead and when small value stocks typically do better. Large, growth-oriented firms usually lead when economic growth slows and the yield curve is flatter, which can weigh on bank lending. This isn’t a problem for large companies with big global footprints, diverse revenue streams and big balance sheets they can leverage to borrow in capital markets. But it disadvantages smaller companies, which lean more on bank lending. A steeper yield curve, which boosts lending, is a tailwind for small value. The yield curve has steepened lately, particularly outside the US, which we think advantages value over growth. Some of the other points here may prove true, like the ultimate winners from AI perhaps being the creative users who base new products and services on it. But that is too far out in the future for markets to price now. Stocks look about 3 – 30 months out, and the steeper yield curve and generally lower sentiment toward small value in general are likely the primary drivers in the foreseeable future.

MarketMinder’s View: This is a straightforward writeup of Japan’s June trade data, which fell -0.5% y/y in value terms as the value of US-bound exports fell—a widely expected consequence of tariffs. The negativity concentrated in autos, but here is where it gets interesting: “Vehicle exports to the United States dropped 26.7 pct in value but rose 3.4 pct in volume. The figures indicate that Japanese automakers are shipping their vehicles to the U.S. market at reduced prices by absorbing costs from [President] Trump’s tariffs.” And total exports rose 2.5% y/y in volume terms, per Japan’s Customs office. Now, some of this discrepancy is probably discounting, but currency also likely helps, as the yen is still pretty darned weak—giving firms something of a buffer to cut prices in dollars without sacrificing much in the way of profits. So overall, despite what some headline data might indicate, thus far there isn’t much evidence US tariffs are a material economic headwind for Japan.