Seven days after Liberation Day things are working out just about as expected in the equity markets. Chaos!
Until this afternoon's 90 day delay announcement every rally met supply. Rumors were quickly squashed and the White House vowed to hold the line on anything other than full victory. And just like that, there was a 90 day delay. Would it have been easier to just delay the tariffs 90 days in the first place? Stop overthinking it.
We have 90 days and have undone a lot of the damage done over the last week. It's a welcome piece of new news and one of the items on the 3-step Wish List I shared with Spencer earlier this week. But it doesn't change much. If you were over-levered this morning it might be time to take a little off the table and give thanks. Uncertainty will be back but for now it certainly is nice for stocks to be irrational in the other direction.
Long-term, China, Vietnam and Indonesia are something of the Big Three in shoes and apparel. I believe but am not sure China and the US are still pushing a combined 200% tariff level. Let's just say a lot of merchants and vendors doing business in the mall are rooting for the Vietnam deal to go through sooner rather than later.
No whining, crying or complaining. Not even a political opinion. I'm GenX, we're "Meh" about everything. If there's a full-blown trade war I'll figure out how to invest through it, we just need to lay out the specific rules. As of now it doesn't look like all these companies are going to survive it but things could still change.
Walmart: We Will Bury You
Walmart held its investors day today and used the opportunity to pull earnings estimates for the quarter. The world's biggest retailer kept revenue growth, however. That's not good news for anyone except Walmart investors (of which I am one) but, honestly, it's not great for anyone.
During the event (which die-hards can watch here) Walmart said the tariff news is impacting sales "day to day" but the company is positioned to play offense. Paraphrasing here but I stand behind this as the gist of Walmart's message, "We win in chaos even faster than we win in peace". Walmart has the most leverage with vendors and, for that matter, the actual governments involved. Walmart will demand, and generally get, preferential treatment wherever possible.
Where it's not possible Walmart is happy to give up a few pennies in earnings for as many quarters as it takes in order to keep prices low. They'll make it up in market share. Walmart does $500b/yr in US sales. There aren't places in America without Walmarts. The only way the company gains share is ripping it out of the hands of other merchants. Walmart can afford to burn some cashflow to keep prices in check. You know who can't? How about Target, the 6th largest general merchant in the US at $100b, give or take.
As long as this goes on and even if it ends Walmart takes share. So does Amazon, so does Costco. Those three can afford any outcome of the trade war. Everyone else is one their own, at least for now.
Chaos doesn't go away with a pause. We're about to see 3 months of stops and starts on trade war deals. Chaos is the new normal. That's great news for the incumbent Big Three of retail.
