Will the Market Maintain Its Momentum Amidst Trump's Increased Tariff Intensity?

The S&P 500 has experienced a significant year-to-date growth, currently up by a double-digit percentage. This strong performance is noteworthy, considering the market's early 2025 struggles when it nearly entered bear market territory.

However, the market's resilience may be tested by the ongoing trade tensions. The ratio of total stock market capitalization to GDP is at its highest level ever, a trend that could be attributed to the impact of tariffs on prices.

The S&P 500 Shiller CAPE ratio, a measure of stock market valuation, is at its third-highest level ever. This suggests expectations of strong earnings growth and rate cuts, which could be influenced by the tariffs and their impact on the economy.

In July, U.S. wholesale inflation as measured by the producer price index jumped by the largest percentage in three years. This inflation could be a result of tariffs, with American consumers paying an additional 22%.

President Trump's tariffs have affected a wide range of countries, even those with which the U.S. maintains a trade surplus. Notably, he has imposed 50% tariffs on imports from India and is threatening 200% tariffs on imports from China.

The latest U.S. jobs report was weaker than expected, potentially increasing the likelihood of another interest rate cut. However, the Federal Reserve's dual mandate is to promote maximum employment and stable prices. Rising inflation decreases the likelihood of interest rate cuts.

The impact of tariffs on companies varies. Goldman Sachs predicts that some companies may pass more tariff costs to consumers, causing inflation. However, many publicly traded companies, especially those in service-oriented industries, may not be materially affected.

U.S. businesses have borne the brunt of the higher costs associated with tariffs. Goldman Sachs found that in the first six months of 2025, U.S. businesses paid 64% of these costs. If inflation rises due to tariffs, Americans may reduce discretionary spending, hurting corporate earnings and potentially stock prices.

It's important to note that imports represent only about 14% of U.S. GDP, meaning most of the economy isn't directly impacted by tariffs. However, when earnings growth slows due to tariffs, so does share price growth.

Despite the challenges, the stock market and U.S. economy have proven resilient over the long run, suggesting a potential rebound after any tariff-induced pullback. The S&P 500 rebounded by almost 30% from its 2025 low point, demonstrating this resilience.

In conclusion, the S&P 500's performance in 2025 has been influenced by a combination of factors, including tariffs, inflation, and the Federal Reserve's monetary policy. As these factors continue to evolve, it will be interesting to see how the market responds.

Will the Market Maintain Its Momentum Amidst Trump's Increased Tariff Intensity?