In the Money: Tariffs

Futures plunge on tariffs, gold surges on safe haven bid, oil's double-whammy, Target warns, tech wreck

The other day my son was angling for a popsicle. It was before dinner so I said no. My sweet 3-year-old looked at me and said “If you don’t give it to me, I’m going to break your knees!” I had hide my shock/laughter and act upset. It is easy to forgive children for their tantrums over things they want but aren’t good for them. Harder to do so for adults who act the same. Anyway, there are definitely no parallels to the way my son behaved and anyone else.

Major sell-offs often happen for a scary reasons. Whether it's the financial crisis, a global pandemic, or a trade war. It always feel awful and like this time is different. Today's episode of In the Money with Amber Kanwar is all about DISCIPLINE. Finding the best companies in the world that can ride out most storms with Paul Harris of Harris Douglas Asset Management. Listen on Apple, Spotify or here.

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Here we go: Futures are indicating a lower open while European markets are plunging more than 2% across the board as tariffs go into effect. This comes after the S&P 500 (-1.76%) and the TSX (-1.54%) put in their worst showing of the year yesterday. The tech-heavy Nasdaq dropped 2.6%. NVIDIA's 8.8% decline accounted for 30% of the fall in the S&P 500 index. The US has imposed 25% tariffs on all imports from Canada and Mexico, 10% tariffs on Canadian energy and critical minerals, and an additional 10% on China. Canada retaliated with tariffs on $30 billion of imports from the US which could go up to $155 billion in three weeks if there is no resolution. The TSX is only down about 3% from its all-time high. However, 70% of the index has corrected 10% or more from their 52-week high. So under the hood, the index is messier than it looks. About 63% of the S&P 500 is in correction territory. Oil is falling for a third day in a row trading at $67/barrel (WTI) to hit a two-month low. In addition to tariff concens, crude is being hit with a double whammy coming from OPEC’s plans to increase production next month. The chance of a rate cut in Canada next week is now at 80%, last week it was 45%. Interestingly the Canadian dollar is actually higher as we retaliate on tariffs (but still trading below 70 cents US and is the first rally in 7 trading sessions). So what to do? UBS says there is more to go in stocks. “…While volatility may persist, we continue to see room for gains in equities,” wrote Ulrike Hoffmann-Burchardi, Chief Investment Officer of Global Equities, UBS Global Wealth Management, “supported by resilient earnings, AI-driven tailwinds, and monetary policy easing.” Hoffman-Burchardi still thinks the S&P 500 can hit 6,600 by year-end (+13% from here). How we get there may change, however. Raymond James’ technical analysis is taking notice of the rotation toward defensive stocks (staples, utilities, etc). “Underneath the surface our longer-term cycle work continues to identify sector rotation towards “defense”, a rotation towards Value from Growth, negative divergences with previous market leaders (Homebuilders / Semiconductors…that suggest a 4-Year Cycle reset (cyclical bear market) is looming.” Investors may remain in the market, but change their exposure. For example, in Canadian banks, Jefferies’ John Aiken says stocks with US exposure are set for better performance. “…the potential implementation of tariffs clouds the outlook and could set back the economy and the banks' growth outlook at the same time,” wrote Aiken, “That said, we believe that the market will revert to quality and U.S. exposure in the near term, setting the stage for better relative performance from RY, BMO and TD (even it tariffs cause a downdraft).”

What’s up: Gold is moving back toward record highs with a +1% move right now. Physical gold is proving to be a safe haven that digital gold (Bitcoin) is failing to provide. Goldman Sachs says tariff uncertainty could push gold prices as high as $3,300 an announced by year end (+12% from here). Bonds are also slightly higher with the yield on the US 10-year trading at the lowest level since October. If bond investors were hoping to send a message to US President Donald Trump ahead of his congressional address tonight, lower borrowing costs aren’t it. The markets are betting on more rate cuts from the Federal Reserve, pricing in three cuts this year. Reminder we will hear from Fed Chair Jerome Powell this Friday.

Lag 7: The Magnificent 7 are officially in correction (-15% from all-time high) and hitting the lowest level in 4-months (see chart below). “The biggest risk to this market and AI Revolution trade in the near-term was that Trump takes an aggressive approach to China, chip export controls, and broader global policy,” wrote Dan Ives of Wedbush. “Our view is we are in the midst of the biggest tech transformation trade since the Industrial Revolution with AI and $2 trillion of AI Capex over the next 3 years. Tariffs and policy are not changing that...they could slow spots down in the near-term, but the winners of this AI Revolution in tech; Nvidia, Microsoft, Alphabet, Amazon, Palantir, Salesforce, Tesla, Apple will remain the stocks to own and any weakness is a buying opportunity.”

Off the mark: Shares of Target are under pressure despite beating profit expectations and growing sales more than anticipated. The bar is low for Target and growth of 1.5% in comparable sales, while tepid, was better than the 1% expected. Target’s profit forecast for the year was better than feared however their outlook for sales calls for flat growth, which was below expectations. This soft outlook echoes what we heard from Walmart. However, unlike Walmart, Target has been struggling with the stock hitting a near 1.5 year low. Tariffs are weighing on the outlook as they will drive up prices for consumers. In fact, Brian Cornell, the CEO of Target, said this morning that prices are going to be going up in “coming days” due to tariffs.

Life line: Walgreens is surging 5% on reports it is nearing a deal to be bought by private equity firm Sycamore Partners. The struggling pharmacy chain would be bought for $11.30-$11.40/share according to the reports. That is barely a premium to where the stock traded just last month and well off where it was last year when it was a $20/share stock. However, perhaps investors are looking to be put out of their misery with the stock losing nearly 90% in value over the last 10 years.