For those of you who would prefer to listen:
So much for a sleepy Friday. Those don’t seem to happen anymore. This week was eventful in many respects. I say this often, there’s plenty of material for me to cover on a weekly basis. Today was a particularly unique and eventful day. It moved Markets. It moved expectations. It moved moods. It went down like this:
Midmorning, the Supreme Court ruled against the Trump Tariffs. The President’s use of IEEPA, (the International Emergency Economic Powers Act), went too far, and only Congress has the power to tariff and tax. According to the ruling, the Court stated: “The Framers recognized the unique importance of this taxing power-a power which “very clear[ly]” includes the power to impose tariffs. And they gave Congress “alone… access to the pockets of the people.” The Framers did not vest any part of the taxing power in the Executive Branch.” The decision argued that an unlimited Presidential power to tariff would be a “transformative expansion” of Presidential authority. So, there’s that.
No surprise, the White House disagreed with the decision. That said, this ruling was not a surprise. In fact, the Predictive Markets had been indicating this was the most likely outcome. And the White House had plenty of time to develop a Plan B. The Market took it very much in stride, with stocks higher, Bonds slightly lower and the Dollar basically flat. What a difference from that so-called “Liberation Day” last Spring when tariffs were first announced. That brought a minor Market crash. It was more like “Obliteration Day”.
A couple of things stand out on this: First, this ruling just applies to the tariffs assessed under IEEPA. That accounted for an estimated $133.5 Billion. The question and issue is, does this money get reimbursed to the companies, and if so, how does that occur? Things just got more uncertain. However, our Washington sources have said all along that the White House has other levers to pull on tariffs. They fall under Sections 122, 301 and 338 of the trade law. These provisions don’t have the same flexibility as IEEPA but could work. They plan to pull those levers now. President Trump said he plans to impose a 10% global tariff.
This, from one of our sources:
It seems unlikely that trading partners that have reached agreements with the US on new tariffs will risk aggravating the Trump administration by scrapping those deals. Since the administration has other tools in its toolbox, we think the new tariff regime will remain in place, despite today’s ruling, which raises the question: How much tariff relief will there be? Answer: Probably not much.
Needless to say, the President is not happy with the Supreme Court. The Republican majority, which includes 3 of his appointments, just ruled against him in a big way. This President has shown a tendency to take things personally. The State of the Union speech is next week. The President will be standing at the podium in the Capitol to deliver his message to the American people. The Supreme Court members will be seated just below him in the audience. There will be no filter in that microphone. This will be interesting, to say the least.
The US Economy isn’t growing as fast as anticipated. Q4 Gross Domestic Product came in at +1.4%. The Street expected 1.9% growth. The Market took the report in stride. The Government shutdown likely played a role in lower spending. Slower growth would be a reason for the Fed to cut rates again. The Market likes that. But minutes after the GDP report came some fresh inflation data. It was hotter than expected. December core PCE came in at 0.4% month-over-month. That was higher than the 0.3% estimate and a big jump from November’s 0.16% print. The result is an annualized 3.0% inflation rate, higher than the prior 2.8%. In fact, it’s the highest since March of 2024. The Personal Consumption Expenditure report is the Fed’s preferred measure of inflation. It calculates the stuff that we buy. Price increases are not slowing as fast as desired. Prices are certainly not coming down. High prices have been the biggest driver of slower growth.
America’s Economy has increasingly developed a “K-shape”. Higher income and asset-owning consumers are faring far better than those who live paycheck to paycheck. Inflation has exacerbated the situation. Walmart made this clear this week when the retail giant reported earnings.
Walmart posted record revenues for the Q4 period. Management said the majority of that revenue came from customers that make over $100K per year. They acknowledged that those making less than $50K are really stretched. Purchases have increasingly been found in promotional goods and generic brands. Taking it a step further, the General Mills CEO said inflation, SNAP benefits reductions and geopolitical uncertainty “have led to significant consumer stress, especially for the middle and lower income groups.” With household brands like Cheerios, Green Giant and Bisquik, General Mills sales reflect the mood of the American consumer. He went on to say: “We see a heightened focus on value, particularly for middle- and lower-income consumers. Cost of living and housing pressures are reshaping spending patterns, and value is a core expectation that is here to stay.” I plan to dig deeper into this subject in the coming weeks, thanks to a request from our long-term valued clients in Virginia.
More insight from Walmart’s earnings: Online sales grew 27% at home and 24% globally. What was particularly interesting, Walmart said that half of its mobile users engaged with the company’s AI tool “Sparky” when shopping. It’s a GenAI assistant that synthesizes reviews, offers recommendations, and helps customers plan, compare and purchase items. The result: Those customers spent 35% more than originally intended. Sparky is getting a raise.
Despite the record quarter, Walmart is no longer America’s largest retailer. Amazon passed the Titan from Bentonville with the most revenue for an American company. It was a trophy that Walmart had for the last 13 years. Exxon and Ford were the leaders prior. How about this: Amazon is on pace to generate over $700 Billion in sales this year. That’s $2 Billion every day! The numbers thrown around today are simply staggering.
Gas prices had been coming down. They trailed the slide in Oil prices from $73 last Summer to $56 to start the year. It’s been a big help in the fight against inflation. The average price across the country was $2.92 to start the week. That’s down 24 cents from a year ago. It might not last. Rising risks of a military conflict in Iran sent crude prices higher this week. WTI hit $66. It was below $60 just a month ago. It’s the highest level since last Summer. It’s a major input in the prices we pay.
Negotiations over Iran’s nuclear program continue. But they’re not making much progress. President Trump made an ultimatum that a deal needs to happen or another strike is coming. A massive military build-up is underway in the Middle East. Importantly, Iran is not in a strong position. Economically, they struggle. The Iranian people have been pushing back on the ruling regime. The Ayatollah is aging and seemingly losing support. The nation’s allies have frayed as well. Desperation is a dangerous thing.
The Strait of Hormuz is back in focus. It’s a chokepoint leading to the Persian Gulf. It measures just 21 miles at its shortest distance, between Iran and Oman. One-third of seaborne global Oil exports run through the Strait every day. It’s roughly 14 Million barrels. Iran started military exercises there this week. A blockage could send crude prices back above $100 in an instant. Iran produces 3 Million barrels per day. Due to sanctions, Iranian Oil sells at a $10 discount. 75% of Iranian Oil produced is exported with China the largest buyer. China is more than happy to accept the discounted price. Vast quantities of Natural Gas run through the Strait, too. Qatar and UAE account for 20% daily LNG supplies. The United States is the largest producer.
The situation is so complicated, in every way. President Trump has made it clear he wants lower Oil prices. That is the surest way of lower inflation and tends to stimulate economic activity. An expanded conflict in the Middle East would certainly send prices higher. This is a major issue for Americans with the midterm elections ahead. Oil is a global commodity. We live in an increasingly connected world. Walt Disney had it right: It’s a small world after all.
The price of Gold is back above $5K. Money keeps flowing into the precious metal as a safe haven. There’s no shortage of risks out there. Among them are geopolitical, inflation, economic slowdown and general uncertainty. Gold has had a steady rise since 2023, when it ended the year at $2K. The value of the precious metal soared ever since. That makes those Olympic medals even more valuable.
Sports has a way of bringing people together. The Olympics are the pinnacle of global competition. The Olympic motto is Citius, Altius, Fortius. The Latin words translate to Faster, Higher, Stronger. Communiterwas added to the motto in 2021. It meansTogether. Solidarity is an Olympic goal, in a period of increasing global divide. The motto is distinct from the Olympic Creed, established with the modern games, which emphasizes that competing is the most important part of the games. It encourages athletes to focus on effort, courage, and the spirit of competition rather than just the final result. That spirit was on display in Milan this week. To be clear, this should not be confused with those vast participation trophies in circulation. That’s an entirely different thing.
Alysa Liu is the new Golden Girl. The 20-year-old from Oakland skated her way to the top of the world, and she did it her way. You no doubt know the story by now, how she “retired” at age 16 due to burnout and after a 2 ½ year break, returned to the ice with a new mindset. Olympic athletes live and breathe their sports, spending countless days and hours training. It’s their life. The amount of pressure and stress they feel is unimaginable to most in the human race. But not this one. Alysa cast that stress aside and decided that she would do things her way.
Alysa, being Alysa, had her focus on the experience, the moment, and how fortunate she was to even be in the building and on the ice. She showed everyone that it’s possible to be elite and also enjoy the ride. And Alysa Liu was there to catch her opponents in her open arms to console them and help them realize that, regardless of outcome, they’re all a part of something special and pressure is only a thing in your head.
Stress comes from worrying about things you can’t control. But if you control the things you can, and embrace the things you can’t with a positive attitude, you’ll find a clear path to happiness. It sounds like a fairytale story. But for this dynamic young lady from the Bay, the daughter of a Chinese immigrant who fled the country after protesting in Tiananmen Square, it’s very real. It’s authentic. And it’s a whole lot of inspiration. I love good stories. I love competition. I love underdogs. I just love this Golden story and hope you share in the inspiration. There’s so much good in this world. We just need to do a better job of shining a light on it.
Thanks for reading. Have a nice weekend, we will be back dark and early on Monday.
Mike
