On Monday afternoon, with US stocks off 3% and dropping the President concluded a meeting with top executives from Walmart, Target and Home Depot. According to Axios, executives told Trump supply chains were in a state of disruption and "shelves will be empty". This wasn't a hypothetical risk of the burgeoning trade war but an actual business fact, happening today.
Almost immediately, there were whispers of a shift in strategy on the trade war front. More importantly, to our immediate financial interests, stocks started coming off the lows.
As the White House has continued to offer more measured thoughts on trade of goods not critical to national security, the stocks hit hardest by the relentlessly negative drumbeat of news since Liberation Day started to rally.
Dicks, Gap, Lululemon, seemingly half the stocks in the mall are up 10% since the lows Monday, with some of our favorites leading the way:
AEO and Gap, two companies which have spent the last 5 years building supply chains all over the world only to see more or less everything shut down by Draconian fees that were constantly changing, are in the mid-teens and basically flat for the last month. Considering back-to-school is already ruined and we're maybe 4 weeks from exchanging gift cards(!) at Christmas, this is pretty good price action.
The size of the moves tells me two things: This market is pricing in almost total inanity in terms of policy. Companies sourcing from all over the world shouldn't be getting destroyed but that's what seemed to be in play. These aren't deals being announced. China isn't calling. The White House is just exhibiting awareness that this isn't just a financial pricing reaction to aggressive actions. This is a self-created crisis. That's all it took to reverse the tape. A tiny bit of a hope. "A plausible strategy for avoiding total disaster", as I put it to Spencer yesterday when discussing the then 0/3 Wishlist.
Reducing the tariffs to simply something that allows goods to start flowing again is a strategy. It's a plan the market can live with for now. But it has to happen. If this turns out to be just another tease the market can still make new lows.
Two truths to leave everyone with:
First, the sharpest rallies come in the middle of Bear Markets. We should all remember that now if we hadn't before.
Second, no one believes in bottoms for a long time either, mostly because of the first rule. There's plenty of reason to doubt we're on the cusp of any tangible trade deals but a simple return back to the normal level of craziness prior to Liberation Day is going to light a fire under some of these left-for-dead consumer stocks.
There are some amazing trades starting to gel... Stay tuned.
UPDATE:
Stocks now off the highs at mid-day on Wednesday as the White House clarified that the current unsustainable tariff level with China of 145% would be reduced to something more along the lines of 50-65%. Which is also unsustainable. Treasury Secretary Bessent then mentioned that a comprehensive deal with China could take "two to three years".
Lather. Rinse. Repeat.
To reiterate, American retailers need a deal in a matter of days. The supply chain with Asia is already shut down. Ports are empty which means retail shelves are about to be. Stocks can't bottom because the fundamentals get worse every day this continues. We still have a dim path out of the darkness. What we need is an actual deal.
