Market Outlook: Tariffs & Tactics

Fresh news and strategies for traders. SPY Trader episode #1303.
Welcome back to Spy Trader, your goto podcast for navigating the twists and turns of the market! I'm your host, Marty Marketmover, and it's 12 pm on Monday, July 14th, 2025, Pacific time. We've got a lot to unpack today, so let's dive right in. The US stock market is seeing a bit of a midday dip, with the Dow Jones Industrial Average down 0.63%, the NASDAQ down 0.22%, and the S&P 500 down 0.33%. Now, while we're seeing some red today, let's keep it in perspective: the broader market has been incredibly resilient. The US500 index, our S&P 500 equivalent, has climbed nearly 4% over the past month and an impressive 11.38% over the last year, hovering near record highs.Our sector performance is quite mixed today, showing that investors are rotating their interests. Leading the charge are Communication Services, up 0.99%, Financials gaining 0.70%, Real Estate up 0.47%, and Industrials increasing by 0.46%. Technology and Healthcare are also seeing small gains. On the flip side, Energy is down 1.29%, Materials are off 0.55%, and Consumer Staples and Utilities are also in negative territory.Now for the big headlines shaping the market. A significant headwind is the announcement of new trade tariffs on over 20 countries, with rates ranging from 20% to 50%. These are set to kick in on August 1st after a 90day pause, bringing a bit of a 'riskoff sentiment' to the market. Good news for some, though: Vietnam and the UK have already secured trade deals with the US, resulting in lower tariff rates for their exports.On the fiscal front, the 'One Big Beautiful Bill Act', or OBBBA, was signed into law on July 4th. This legislation extends provisions of the 2017 Tax Cuts and Jobs Act and introduces new tax breaks and spending cuts. It's projected to increase government deficits by 3.3 trillion dollars over the next decade.In the crypto world, Bitcoin had a notable surge over the weekend, hitting a new alltime high of 123,000 dollars, with other altcoins also seeing sharp increases. Discussions about establishing a regulatory framework for cryptocurrencies are starting up in the House.And it's earnings season! The official start is this week. Analysts are anticipating a 5% annual earnings growth for S&P 500 companies, which is a decrease from the 13% growth we saw in the first quarter of 2025.Looking at the bigger picture, the US economy experienced a contraction in the first quarter of 2025, with real GDP decreasing at an annual rate of 0.5%, following a 2.4% increase in the fourth quarter of 2024. This decline was largely due to an increase in imports and a decrease in government spending, partially offset by increased investment and consumer spending. The economy is forecasted to slow significantly in the second half of 2025, with GDP growth potentially reaching only 0.8% yearoveryear by the fourth quarter, largely due to what some are calling a 'demand cliff' as businesses and consumers frontloaded purchases ahead of anticipated trade restrictions.Inflationwise, Core Personal Consumption Expenditures, or PCE, inflation stands around 2.3%, still a bit above the Federal Reserve's 2% target. The newly imposed tariffs are expected to contribute to a 'renewed inflation impulse,' potentially pushing core PCE inflation to 3.1% by yearend.The Federal Reserve maintained its federal funds rate at 4.25% to 4.50% at its June meeting and is expected to hold off on further rate cuts for now, waiting for more clarity on inflation and the impact of tariffs. Rate cuts are anticipated to resume in the fall, possibly approaching 3% to 3.5% into 2026 as inflation moderates.The labor market is described as resilient but cooling. In May, 139,000 jobs were added, and the unemployment rate remained steady at 4.2%. This stability gives the Fed some flexibility in its monetary policy decisions.Beyond the broader market trends, companyspecific news includes Starbucks' decision to increase its inoffice work requirement to four days a week as part of a turnaround strategy. Companies like Autodesk Inc. are up 5.64%, Fortinet Inc. is up 4.16%, and EQT Corp is up 4.14% today, among notable gainers. The start of the official earnings season this week will bring more companyspecific updates and likely drive individual stock movements.Alright, let's talk strategy. The market right now is a bit of a tugofwar between its strong underlying longterm foundation and some immediate headwinds, mainly those new trade tariffs. These tariffs are a primary concern, with potential inflationary impacts and a projected slowdown in GDP growth in the latter half of the year. While the fiscal stimulus from the 'One Big Beautiful Bill Act' could offer some support, it also adds to our longterm deficit concerns. The Federal Reserve is playing it patient, waiting for more economic clarity, which suggests a measured approach to monetary policy with potential rate cuts later in the year if inflation cools off. Earnings expectations for this quarter are a bit subdued, hinting at a more challenging corporate environment. The divergence in sector performance today really highlights the importance of being selective with your investments. And that crypto surge? It shows a growing but definitely volatile alternative investment space.So, what's a savvy investor to do? First, when it comes to strategic sector allocation, you'll want to maintain a diversified portfolio, but consider putting more weight into sectors that are showing resilience and growth. I'm talking about overweighting Financials, Communication Services, Industrials, and Technology. These sectors are either leading today's performance, showing strong yeartodate gains, or are wellpositioned for an expanding economy. On the other hand, you might want to be underweight or cautious with Energy and Materials, as these are sensitive to global trade dynamics and industrial demand, which could be impacted by tariffs and an economic slowdown. Also, Consumer Staples, while defensive, are lagging today.Second, diligent monitoring of trade policy is crucial. Keep a close eye on news regarding trade negotiations and any further tariffs or deals. Companies with high exposure to international supply chains, especially those reliant on imports from affected countries, might see increased costs. So, favor companies with strong domestic revenue streams, diversified global operations, or those with a proven ability to adapt.Third, watch for Federal Reserve cues and inflation data. The Fed's future interest rate decisions will significantly influence the market. Pay close attention to upcoming inflation reports, particularly Core PCE, and any statements from Fed officials. If inflation persists or the Fed signals a longer period of higher rates, consider value stocks and dividendpaying companies. If rate cuts do materialize as expected in the fall, growthoriented sectors could get a boost.Fourth, scrutinize Q2 earnings reports. With analysts projecting lower earnings growth for the S&P 500, individual company reports will be highly influential. Focus on companies that demonstrate strong fundamentals, efficient cost management, and resilient demand for their products or services. Prioritize companies with solid balance sheets, a history of consistent earnings, and optimistic forward guidance that acknowledges the current economic climate.Fifth, favor US largecap and midcap equities. These segments are currently recommended due to their relative resilience and often more diversified revenue streams, making them better positioned to navigate domestic and international economic shifts compared to smaller companies.Sixth, take a cautious approach to international developed markets. While international stocks have performed well recently, their outperformance is expected to moderate. Be selective with your international allocations, particularly in developed markets, and ensure they align with your overall risk tolerance and diversification strategy.And finally, for those with a high tolerance for risk and a thorough understanding of the volatile nature of cryptocurrencies, you might consider a small, speculative cryptocurrency allocation. Given the recent surge in Bitcoin and ongoing regulatory discussions, it could be an option. But remember, it's crucial to acknowledge the inherent price volatility and regulatory uncertainties here.That's all for this edition of Spy Trader. Stay smart, stay informed, and happy trading!