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Goldman Sachs outlines four legal avenues for White House to enact tariffs after trade court ruling. (0:15) First-quarter GDP contracts a little less than first estimated. (2:24) HP tumbles after earnings. (3:39)
This is an abridged transcript of the podcast:
Our top story so far, you heard on Wall Street Breakfast this morning about the trade court ruling against the White House’s April tariffs imposed using the International Emergency Economic Powers Act of 1977.
But Goldman Sachs Chief U.S. Political Economist Alec Phillips says there are four ways for the administration to impose similar tariffs, regardless of how an appeal turns out.
1. "The administration could quickly replace the 10% across-the-board tariff with a similar tariff of up to 15% under Sec. 122. Those tariffs would last for only up to 150 days, after which the law requires Congressional action to extend." The law is not clear on whether those tariffs can stop and restart, Phillips says, but it authorizes the president "to address a balance of payments deficit or to prevent an imminent and significant depreciation in the dollar, but it does not require any formal investigation or process, so the administration could theoretically replace the current 10% tariff with a Sec. 122-based tariff within days if deemed necessary."
2. "The US Trade Representative could quickly launch Sec. 301 investigations on key trading partners (for unfair trade practices), laying the procedural groundwork for tariffs after the investigation is complete." There is no level on duration of the tariffs, but investigations would likely take several weeks, he said.
3. "Sec. 232 tariffs (based on national security grounds), which President Trump has already used for steel, aluminum, and autos, could be broadened to cover other sectors. We already expect additional sectoral tariffs (pharmaceuticals, semiconductors/electronics, etc.) and uncertainty regarding the IEEPA-based tariffs could lead the White House to put more emphasis on sectoral tariffs, where there is much less legal uncertainty."
4. "Sec. 338 of the Trade Act of 1930 allows the President to impose tariffs of up to 50% on imports from countries that discriminate against the US. This authority, which has never been used, is similar to the authority under Sec. 301, except that it limits the amount of the tariffs but does not require a formal investigation."
The likelihood is that the White House uses Sec. 122 to impose similar across the-board tariffs and then use Sec. 301 for investigations into larger trading partners, Phillips said.
On the economic front, the second estimate of U.S. Q1 GDP was revised to a slightly smaller contraction, an annual rate of -0.2% Q/Q vs. the advance estimate of -0.3% and the -0.3% consensus.
The revision reflects an upward revision to investment that was partly offset by a downward revision to consumer spending. As in the initial Q1 GDP estimate, the decline is attributed from a surge in imports during the quarter.
The Core PCE Price Index was revised slightly lower to +3.4% from its initial estimate of +3.5%, but still represents a hefty rise from +2.6% in Q4.
Among active stocks, HP (HPQ) is tumbling after the PC and printer maker reported fiscal second-quarter results and guidance that missed expectations by a wide margin.
For the third quarter, HP expects EPS, excluding one-time items, to be between $0.68 and $0.80, well below the $0.90 analysts were expecting. For the full-year, HP expects EPS between $3 and $3.30 on an adjusted basis, well shy of the $3.56 estimate.
TD Cowen cuts its rating on Starbucks (SBUX) to Hold from Buy as it lowered profit expectations.
Analyst Andrew Charles says Starbucks will settle into a 2026-2028 EPS base that is below a consensus expectation, which does not appear to be considering labor investments central to the turnaround. The firm also sees a risk that a return to normalized same-store sales growth is delayed by "deteriorating value perceptions, historical underperformance in recessions, & increased competition."
And SentinelOne (S) is sliding after it reported mixed first-quarter results and guidance, prompting Bank of America to downgrade the cybersecurity company to Neutral from Buy.
Analyst Tal Liani said: “The focal point of the last two quarters has been weaker guidance, with growth of 21%, -500bps off Street’s initial FY26 expectations. At the time, we interpreted this as a resetting of expectations by the new CFO. However, the company lowered its FY26 revenue growth guidance again this quarter from 23% previously to 22%, attributed to macro uncertainty and deal fluctuations.”
And in the Wall Street Research Corner, the return of bond vigilantes could mean it's time to buy the long bond.
BofA strategist Michael Hartnett says the rolling 10-year return from Treasuries (TLT) (SHY) (IEI) (IEF) is in the same, negative, "humiliating" place that stock returns were in February 2009 and commodities were in June 2018,
There's now "nothing more contrarian in '25 than being long the long end," he said.
The 2020s bond bear market "is perfectly sensible given 'all hat and no cattle' path of US tariff policy ... the 'DOGE is out, tax cuts are in" Q2 pivot, (and) investor need to hedge risk 'bubble & boom' policies pursued as politically the easiest way to reduce debt as % GDP," Hartnett said.
But with bond vigilantes pushing down Treasury prices, there's now a great entry point to buy the 30-year (US30Y), he said.
The magic Treasury yield number is the 5-year (US5Y) at 3%, above which the $1.2T interest payments on U.S. debt grow, below which they stabilize," Hartnett added.
