Weekly Newsletter: October 13, 2025
It is a bit early to review the Christmas movie releases that are usually due in November, but the “Return of Tariff Man” is looking like a dud. The movie opens with “Liberation Day” and the imposition of tariffs across many countries and products. Within a few moments, the ground is laid for a happy ending as many of the tariffs are either reduced or negotiated to more favorable terms. Lingering in the background are the impacts of those higher prices. Will they dent the consumer? Impair economic growth? As the movie moves through the summer months, it is clear that tariffs have little impact on the consumer and the overall economy, and a happy ending is in the offing. Ominous clouds begin to form as Congress struggles to keep the government open. Expectations are still for a happy ending. However, as the screen begins to fade, Tariff Man makes another appearance, imposing onerous tariffs on China. The reviews from the financial markets were the worst day since the first appearance of Tariff Man. Worries abound this new wave of tariffs could spell lasting trouble for the financial “heroes”, meaning technology companies. What lies ahead might be the first correction since the market bottom at the end of April. If this sequel is anything like Hollywood, it may be a disappointing shadow of the first one.
The government shutdown is forcing investors to look in very different places to get some indication of the health of the economy. It is rumored that some government workers will be putting together the consumer price index figures ahead of the Fed meeting in two weeks. Desperate measures, requiring some desperate solutions. One report that was highlighted last week was the National Retail Federation (NRF) and its released of the report on the state of retail sales. Their figures showed some slowing during September as consumers may be holding back ahead of the holiday season. That said, the year-over-year figure was still robust, above 5%. Also noted, Halloween sales were running higher than in previous years. Taken together, investors interpreted the data as favorable for a Fed looking for reasons to cut rates later this month. The piling on of tariffs also pushed investors into the safety of bonds, pushing yields lower on the week. The coming week will be loaded with Fed speakers, acting in place of real economic data. Whether the inflation data will be ready for prime time is still unknown, but it is due on Thursday. The beginning of earnings season should also give investors something to analyze in place of hard economic data.
Interest rates have been remarkably stable, even as the Fed tries to push them lower. That shifted rather dramatically on the heels of the China tariff announcement. Rates beyond one year fell to their lowest levels of the month and nearly 10 basis points in one day. The interest rate model, which tracks commodity prices, short and long-term interest rates, and “proxies” like utility stock prices, continues to point to still lower interest rates in the future. Interestingly, the model has generally been positive toward interest rates since Valentine’s Day. Since that time, the bond index has increased by 5.5%. Intermediate treasury bond ETFs are back to levels last seen over 3½ years ago. The stories about the death of the bond market seem to be greatly exaggerated. The action on Friday reiterated that having bonds as part of an overall allocation does provide a cushion when stocks take it on the chin.
Things were going just swimmingly until midday on Friday, when the tariffs were announced. Stocks went from touching all-time highs to erasing a full month of gains. The question that comes immediately to mind is whether this is a drop that investors will buy or if the selling continues. Certainly, the markets have been due for a correction for some time, especially technology stocks. The tariffs with China will be a direct hit on technology and could mark at least a short-term turning point for the popular sector. Another question that comes to mind is whether “Trump (will) Always Chickens Out (TACO).” Following across-theboard tariffs in the spring, Trump backed off rather quickly, allowing the markets to get their footing and put on a spectacular recovery. Will this be any different? Certainly, momentum measures were at multiyear highs, so some type of decline is/was warranted. The next couple of weeks should provide some additional color as to whether this passes quickly or lingers into a scary Halloween.
Maybe government officials will be called back to assemble inflation data this week. Fed commentary, earnings, and further adventures of the government shutdown will be competing for investors’ attention.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.