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Trump's draconian tariffs, markets fall (0:30). Declines in retail and tech (2:50). Tesla stock price, Q1 deliveries, Musk murmurs (6:20). Retail bright spots and low lights (9:30). AI spending, guidance coming (13:20). Macro data points (15:25).
Transcript
Rena Sherbill: Brian Stewart, welcome back to Wall Street Breakfast. We're in some times, aren't we friend?
Brian Stewart: Indeed, yeah. Busy times. Busy times.
RS: Busy times, especially as the director of news. So tariff talk all around. What do you got for us, what would you share with investors?
BS: So we're recording this on Thursday as the markets fall following the tariff announcement last night. The tariffs were much more draconian than people had predicted. So the market is adjusting accordingly.
If you're taking the optimistic view of the process that we're now involved in, Trump is in the the process of doing a negotiation tactic. He's playing chicken with the rest of the world. These are the opening gambit to negotiations. And so over the next few weeks, we're gonna see these mitigated or exceptions made to the point where they won't be as aggressive as they are now.
The pessimistic view is that Trump isn't interested in coming to any sort of reasonable terms with countries, that there's a more kind of political component to the tariffs more than economic, and that they could conceivably spark a worldwide recession in the near future.
RS: What are the things that investors should be most paying attention to as they navigate these unprecedented times, in this market volatility?
BS: I think that the news flow over the next foreseeable future is going to be kind of how sticky are these tariffs? Is this the end state that we're just going to put these tariffs in place.
Just to give some perspective to listeners who haven't dug into the details yet, it's 10% a minimum, every country gets at least a 10% tariff. And then through an equation related to the trade deficit that we have with various countries, a tariff rate set.
And so the highest rates on countries like Cambodia is 49%. I believe doing this off the top of my head, but I think China was 34% on top of the 20% that we'd already put in place. So extremely high in normal economic structures.
The tariffs are just gonna be passed on to consumers. So you can expect items that are coming in from those countries to just become 49% more expensive or 34% more expensive depending on where they come from.
So as we look at the fallout today, unsurprisingly, you see a lot of declines in the retail sector, especially in the smaller cap and mid cap retail space. So just to give some examples, like Five Below (FIVE), a low price retailer that gets a lot of items from overseas, China, Taiwan, Vietnam, those kinds of places. It's down 26% as we're speaking.
Gap (GAP) is down 18%. Kohl's (KSS) is down 24%. Victoria's Secret (VSCO) down 20%. So companies that have a supply chain that's very, very reliant on those countries are going to to see a hard hit.
We're also seeing a lot of tech stocks get hit. One of the the standouts is Apple (AAPL), which is down about 8%, getting back to levels last seen last summer. Also just kind of doing a quick check of the magnificent seven.
We have Amazon (AMZN) down 7% Nvidia (NVDA) down six, Meta (META) down six. They're all reaching September levels.
One, I guess you'd call it a standout in terms of how well it's holding up today, is Microsoft (MSFT). It's only down 1% today, but it's just off a fifty two week low, down 10% so far this year. So it's already priced in some of this action.
So we're seeing a broad based focus on consumer and technology stocks. Like I said, we're just adjusting to the reality and trying to figure out what the reality is gonna be going forward.
RS: Before we leave the tariff conversation in favor of some stock specific news, anything noteworthy to point out about the tariffs on the uninhabited islands?
BS: Any process by which these tariffs were arrived at, it seems to be that there was a spreadsheet somewhere, and there was equations used and sort of spit out. And there wasn't a review process to see the reality of the situation on the ground and what this would mean and what this meant.
If you wanna look at it as a glimpse into the Trump administration's process to putting these in place, and if you're an optimist, maybe that points to the idea that this is just an opening gambit that we were setting a number, we needed that number to be justified in some sort of way, so here it is.
And now we're going to talk to the individual countries. Obviously you can't talk to an uninhabited island, but those tariffs aren't going to affect consumers anyway.
So, we'll see how things shake out. Generally speaking, looking back at past administrations, they've been very responsive to the stock market.
That's one of the kind of main signals that presidential administrations have used to determine popularity in the absence of when elections are far away.
If you want to judge popular opinion, the stock market is one of the indexes that they use. So traditionally, historically, a move like today would have the White House discussing internally next moves.
I'm not sure how responsive the Trump administration is. We just don't know. The administration's new. It hasn't changed policy much in response to previous stock market dips so far this year.
So it remains to be seen exactly what the next steps are.
RS: So speaking of not knowing what the next steps are and having a lot of drama around the numbers and volatility are the Tesla (TSLA) Q1 delivery numbers that we saw yesterday.
We did a special Bull Bear Investing Experts podcast episode around the stock. There was some questioning of why the stock was moving up. Was it because of that Politico report?
Is Elon Musk leaving DOGE? He says no. Hard to know exactly which sources to read when. But what would you say out of those numbers, and what would you say for Tesla followers?
BS: So just to review the action yesterday. Tesla was down early in the day based on the delivery numbers. As you point out, there was a bounce back later and the stock was higher, ended higher, before being down today, after the tariff announcement.
I think part of that was there was already an expectation in the market that the Q1 deliveries were gonna be bad. They were worse than expected. And so you saw a dip, but a lot of that already been priced into the stock.
And so I don't know that deliveries were ever going to have a lingering impact on the stock price. I think that was always going to be the jumping off point for whatever was coming next.
I do think that Politico story did provide a catalyst on the upside. I'm using Dan Ives now as a bull sentiment index. He's been pounding the table that Musk's activity in DOGE have been very problematic for Tesla's brands and that he needs to step away from DOGE and come back to the company and take the steps necessary.
He calls it a moment of truth for Musk. So if you take that as the bulls' view of the stock is that's a necessary step. You can see why the stock would rally on the idea that he was stepping back from DOGE and moving back to full time managements of Tesla later.
After that report came out, both the White House and Musk denied that it was true. It's not clear how much of that is saving face, how much of that is truly Musk's intent? The bottom line is it's not clear right now what Musk's plans are going forward, how much time he plans to spend at DOGE, how much time he plans to be at Tesla.
That uncertainty itself is a problem for Tesla. So a lot of the future of Tesla depends, and I'm talking about the near term future, if you're a long term bull, you're betting on autonomous driving, you're betting on robots, you're betting on the building out of the green infrastructure, solar and charging stations and all the parts of Tesla that point to a bright future.
But in the near term and the medium term, Musk is so tied to the company that's it is dependent, the movement of the stock in the near term is gonna be very dependent on how he handles the public outcry.
RS: Certainly interesting to see what happens there. What would you say as it pertains to retail? We touched on it at the beginning of the conversation. We saw a lot of movement out of some retail names, specifically the lower cost players like TJ Maxx (TJX), Costco (COST). What would you say or what else would you say about the retail side of things?
BS: You point out some bright spots today in the retail sector. I guess, TJX would be the ticker, that grouping of companies is TJ Maxx, Marshalls, that company, it's up 1.6% today. It was up 6% going into today in the previous week.
So the stock was already boosted. One of the benefits it has, it basically buys inventory from other retailers. So when companies have too much inventory, it'll take it off its hand and sell it at discounted prices.
That's its business plan. Because it has this flexible supply chain, it's not as plugged into, it can move around in response to these tariffs.
It's also benefiting from the general move to lower price options. So it's been one of the standout winners in the retail space today and in the near term.
You also see companies like Costco and Walmart (WMT). Costco's up slightly today and Walmart's down slightly, but down much less than the market in general.
Also, Walmart's up about 5% over the previous five days anyway. Walmart took a dip back in February after it issued soft guidance. But in recent days, it's reportedly been pushing its Chinese suppliers to lower costs.
So I think there's a bet that companies like Costco and Walmart are in a situation where all retailers are going to be hurt by these tariffs because their supply chains are going to be affected by much more expensive.
Companies like Costco and Walmart are large enough that they can negotiate better prices. So even though the entire industry is gonna be a general loser relative to their competitors, Walmart and Costco can get better deals, and so therefore, it can still offer lower prices.
RS: And what would you say about the stocks that have been down this week? Restoration Hardware (RH) is a big one, but many of the tech names, as you mentioned, are also significantly down.
How would you contextualize that for investors?
BS: So RH restoration hardware is down about 39% today, but, I mean, that's partially tariff related, but it had negative earnings as well.
It missed expectations and gave soft guidance. It's described the current housing market as the worst housing market in almost fifty years.
So it's a luxury furniture retailer, and it's just in the perfect storm. Everything's going wrong macro speaking for RH. And so you can see it losing a large chunk of its value today.
In terms of the other tech companies, besides the supply chain issues that are being affected by the tariffs, there's also the fear that the AI build out is not gonna be as aggressive as originally hoped.
I think there's just a general moving away. There was already a general moving away from tech into more defensive. People were hedging their bets a little bit on tech.
And so I think this has only exacerbated this, as we discussed during the sell off that happened earlier this year. If you're bullish, long term bullish generally, the best case scenario is that it falls quickly and finds a bottom quickly and then starts to recover.
So in a certain sense, if you want to take a reversely positive look at a day when the NASDAQ at its lowest point was down more than 5%, you can say we washed out all the concerns and now we can have a better base to build on.
So if you're a tech bull, this is a great chance to get tech companies at a reduced price. If you're convinced that we're headed straight into an economic brick wall, then this is just the beginning.
RS: And is there a timeline for when we might know more about AI spending? What do you sense out of that, or what are you seeing from that?
BS: Next week, we start to get the earning season churning. Next week is financial focus. There's not a lot of tech companies on the docket, but in the weeks following.
So as we get into the tail of April, we should start to get more tech companies reporting. The commentary from those tech companies is probably gonna be pretty cloudy.
I think a lot of them are going to have to suspend guidance or generalize their guidance in a way that makes it difficult to get visibility just because they're all gonna be scrambling to figure out the tariff situation.
But within those earnings reports and the commentary that the management's gonna provide, there should be kind of line items about underlying AI demand.
And so I think investors should look at that for longer term investment planning, looking for those nuggets of information that are gonna come out of these earnings reports about the underlying demand for infrastructure build out.
RS: And what would you say about the financial earnings coming?
BS: I feel that the market's gonna be very macro focused for a while. So I think individual companies, there might be large positive surprises or large negative surprises.
However, in general, I don't know if that's going to provide a catalyst to move the overall market. Cause I think it will be just so obsessed with the political machinations that are going to surround the tariff announcements.
But I do see it as a way, a signpost as we're going to start getting more earnings related data, financial related data in general. So I think the market's going to, over the next few weeks, start the process of turning inward a little bit and taking its eyes off of Washington and more on Wall Street in general.
RS: Oh, it'd be nice to take our eyes off Washington a little bit, won't it?
Last week we talked about the importance of some employment data that we'd be getting this past week. Also, the manufacturing surveys coming out. What would you say about what we saw and what macro points are coming in the coming week?
BS: So next week, we got the FOME minutes, which are gonna let us know what the Fed was talking about and thinking about when it made its last rate announcements.
We're also gonna get the CPI and PPIs. We're gonna get the latest inflation data.
I think the inflation data, even more than the Jobs report or the manufacturing report, I feel that given the situation with tariffs and the possible economic implications of those, that that data is gonna be seen as backward looking.
It just does not describe the reality that we're living in post tariffs. So I don't know that that's gonna have a huge impact on the thought process, but the CPI report might because it will kind of define the baseline as we look to whether or not tariffs are gonna cause higher prices.
I mean, the worst case scenario still remains that we end up in some sort of stagflationary environment where demand craters because everything gets too expensive.
And so we have a recession, but prices remain sticky because tariffs are adding to already existing inflationary pressures. And so prices remain high and jobs start to bottom out. So we could see a worst case scenario brewing. So I think that the inflation report that comes out next week will be very important in setting those expectations.
RS: And the employment picture?
BS: I just don't think that this month's data means much because so much has happened on a macro level.
There's been such a seismic shift in the possibilities, but I think if we look ahead, if we go to May when we're gonna get the April report, that's businesses that are going to be responding in the next few weeks to the realities of what their supply chain is going to look like, what their cost basis is going to be and setting their employment levels there.
So that would be the first data point that would involve companies responding to the new reality.
RS: And any other upcoming earnings to make note of?
BS: Another one next week is Delta Airlines (DAL). The first airline one, it'll be interesting just for the airlines. It's the first marker of demand for travel.
Also, CarMax (KMX) is an interesting one just because we are getting a 25% tariff on foreign made auto and auto parts. And so CarMax, which is a car dealer, it'd be interesting to see if there's a run on the bank for cars made before the tariffs put into place.
So just in terms of a macro data point, it might be interesting to check that out.
