Commentary

Stocks have seen a spectacular rise since the bottom in early April. President Trump said on Truth Social, on April 9th, the day the recovery began, “THIS IS A GREAT TIME TO BUY!!!” On April 8th, the S&P 500 touched a low of 4,910. As of last Thursday’s close, it was at 6,279, up 27.9% in three months. NASDAQ fell as low as 14,784 in April, and it closed last week at 20,601, up 39.3% in three months.

Maybe President Trump should register as an investment advisor and start a new market timing service.

But anytime the stock market sets a new high – especially going into a 3-day holiday recess – profit-taking is likely to follow. For now, however, it appears the stock market is merely rotating. For example, the quantum computing stocks that were so hot a few weeks ago have settled down, allowing semiconductor stocks to surge forward. I expect some profit-taking to persist in leading stocks like Palantir Technologies (PLTR), but as long as money is being reshuffled instead of taken in cash, there is nothing to worry about.

The biggest news last week was that President Trump got his “Big Beautiful Bill” passed by July 4th. First, it cleared the Senate last Tuesday with a 50-50 tie, broken by Vice President J.D. Vance. Then, the House of Representatives threatened to make massive changes, but let the bill pass, basically untouched, so the bill’s tax cuts should soon boost consumer confidence by putting far more money into consumers’ hands.

Here are the most important developments recently and what they mean:

- The big news next week will be the Consumer Price Index (CPI), Producer Price Index (PPI) and Retail Sales reports. I am expecting favorable inflation reports and for retail sales to have picked up a bit from May’s slow pace. Economic activity appears to be picking up, so both business and consumer sentiment should be rising.

- The news this week is dominated by the Trump tariffs and all the letters being sent to countries disclosing their August 1st tariffs. Japan and South Korea have been hit with 25% tariffs, so both these major trading partners want to negotiate a more favorable trade deal. Since Japan and South Korea have auto plants in the U.S., they can onshore more manufacturing, so it will be interesting if they can cut a more favorable deal with the Trump Administration.

- July 9th is the tariff deadline for many countries, so it will be interesting how many countries reduce their reciprocal tariffs to get a better trade deal with the U.S. August 1st is the deadline for some other countries that have been negotiating “frame works” with the U.S., like the European Union (EU). The EU, with trade barriers erected for 27 countries, is expected to be difficult to deal with, since the EU has many protectionist layers erected to protect domestic industries. Germany’s finance minister is warning that the EU should prepare for retaliatory measures against the U.S. if they fail to reach a “fair” deal. Nonetheless, the cooperation at the recent NATO summit was encouraging, so maybe the EU will be more cooperative than I envision.

- The tariffs on Vietnam have been finalized at 20% on exports to the U.S. and 40% on Chinese products sub-assembled in Vietnam. China also does a lot of sub-assembly in Mexico, so the Vietnam tariffs are a preview of what to expect and how the Trump Administration is not allowing China to circumvent U.S. tariffs via other countries.

- There is no doubt that the tariffs the Trump Administration is imposing are controversial, but the countries that cooperate with the U.S., like Australia and Britain, are only being hit with 10% baseline tariffs, which should be largely offset by appreciation in the U.S. dollar in the upcoming months. Other countries face high reciprocal tariffs if they have their own trade barriers and do not agree to buy U.S. energy or other U.S. exports.

- I remain in the camp that when all the dust settles, there will be freer trade with fewer tariffs, since many countries cannot fight with the U.S. The tariff revenue to the U.S. Treasury soared to $24.2 billion in May and is now expected to soar to $60 billion or higher per month in the upcoming months. This tariff revenue is designed to help reduce the federal budget deficit and offset many of the tax cuts included in the “Big Beautiful Bill” that Congress recently passed and President Trump signed.

- U.S. exports continue to rise as the Trump Administration demands that other countries buy U.S. agricultural and energy products in exchange for more favorable reciprocal trade deals. As the trade deficit shrinks, it naturally boosts GDP growth. I am expecting that after the manufacturing sector perks up due to all the onshoring underway that the U.S. will briefly hit 5% annual GDP growth. Since a significant proportion of this GDP growth will be tied to exports, I do not expect that resurging GDP growth will be inflationary.

- You might be asking yourself now that “economic nirvana” is fast approaching, what could go wrong? Well, the Trump Administration still has to end the war between Russia and Ukraine as well as strive for peace in the Middle East. Iran remains defiant, but has been dealt a severe setback in its nuclear ambitions by both Israel and the U.S. The primary reason that Iran’s energy infrastructure was not targeted is that the Trump Administration is not trying to hurt Iran economically. Nonetheless, both Israel and the U.S. still have to be on guard for any reciprocal attacks.

- The other thing that could go wrong is seasonality. August is a month that I dread every year, since it is seasonally weak as Europe and many Wall Street folks like to go on an extended vacation in August. However, if the Fed cuts key interest rates at its Federal Open Market Committee (FOMC) meeting on July 29th, then the stock market could get a “turbo boost” that will help divert even more money into the stock market. The bottom line is that there will be some crosscurrents commencing in August, but I remain bullish on overall U.S. GDP growth and a strong earnings environment persisting.

- It is time to be bullish on America since all the uncertainty that was plaguing the stock market has largely diminished. We have an economic cheerleader in the White House. Treasury Secretary Scott Bessent has been a calming influence and has helped to better manage Treasury auctions, reassure Wall Street and boost investor confidence. The tariffs have boosted tax revenue and so far have proven not to be inflationary. The 2017 tax cuts are now permanent and considerable tax relief has been passed for senior citizens and 90% of taxpayers. With more money being put in people’s pockets, prosperity is expected to rise. The most important thing is that the “velocity of money” is expected to pick up and help boost economic activity.

- Fed Chairman Jerome Powell is effectively a lame duck and now more FOMC members are speaking out about the need to cut key interest rates, which should stimulate the automotive and housing sectors, as well as boost both business and consumer confidence.

In summary, I want you to feel good about our fundamentally superior stocks, recent tax cuts, the surging tax revenue from tariffs, the onshoring in America and the fact that the Fed will be finally joining the party and help provide a “turbo boost,” so the U.S. economy accelerates to 5% annual GDP growth.

*Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.