I have focused on the trouble with tariffs in many of my recent market commentaries. In particular, how the last time we embarked on this journey in late 2018 it led to a serious sell off in the S&P 500 (SPY).
Why is this time different?
Answering that question will be at the heart of this week’s Reitmeister Total Return commentary.
Market Outlook
Let’s start with an interesting presentation from Goldman Sachs showing how the S&P 500 reacted to US and China tariff announcements back in 2018:
At first investors did seem to take the bait on the early tariff announcements in January 2025 like the ones immediately announced for our 3 biggest trading partners; Canada, Mexico and China. And yet after a quick sell off stocks were right back to flirting with the all time highs.
Once again, this begs the question; why is this time different than 2018?
The first way to answer this question is to say that it’s still early in the ballgame and there is plenty of time for trade talks devolve with stocks tumbling.
On the other hand, investors may have a better appreciation of Trump’s negotiating tactics and that things worked out pretty well last time. So this time around investors might be less reactive to the headlines and will only consider selling if they see any weakness in the economy.
Another possibility is the potential to roll out a new series of corporate tax cuts as he did in his first term. It’s not hard to appreciate why that is so beneficial for stock prices:
Lower Tax Rate > Higher EPS > Higher Fair Value for Stocks
So with this potential prize on the horizon, then investors may not want to be suckered into selling shares on tariff talks in case this serious catalyst for stocks takes place.
These are logical and reasonable thoughts that are keeping stocks aloft. But it does lead to the next question...why aren’t stocks rising to new all time highs?
Here we have a combination of possibilities:
- Inflation still too elevated and unclear when the next Fed rate cut will come
- If tariffs do prove inflationary...then it compounds the above Fed decision...and perhaps their next move is to raise rates.
- Earnings season looks good on the surface with 77% of the companies’ beating estimates. Unfortunately, estimates for the future have been dramatically cut. In fact, EPS growth expectations for Q1-25 has been reduced from +6% to just +1.45% in the last few weeks. That diminished outlook does not help the elevated valuation problem for stocks.
Any singular one of these reasons is enough for investors to press pause. This does seem to have us a stalemate. Or what might be better described as a “wait and see” market.
Meaning there are too many questions marks looming out there which makes it hard to push higher. And too many possible positive catalysts on the horizon to go much lower.
This has us pressed into a very tight trading range of 6,000 to 6,100. That will not last for long.
Either things turn a bit more negative, like devolving into trade war...or tariffs prove inflationary and stocks break below 6,000.
Or these fears prove unfounded...or corporate tax cuts get put on the table and we burst higher.
Because this is still a bull market til proven otherwise then best to lean towards fully invested. More active traders who are comfortable with market timing, may be fine with some dry powder sitting on the sidelines and then commit that money once we break above or below the range.
In my Reitmeister Total Return portfolio, where we do have an eye towards market timing, then I am comfortable being only 70.5% long stocks with 29.5% sitting in cash at this time.
A break below 6,000 and I will look to “buy the dip” to enjoy ample returns when the bull market gets back on track.
If stocks break above 6,100, then I will join the rally. The key is not getting sucked in too early. Remember in late January stocks spent a little time above including making a new all time high at 6,128 before tucking tail and heading back lower in the range.
Any way you slice it...I see nothing right now that ends the bull market that started in October 2022. This is just a logical spot to “wait and see” what happens next.
I hope the plan above gives you ideas of what you might want to do in your portfolio. And in the section below are highlights of my favorite picks to own now.
What To Do Next?
Check out my portfolio with hand selected picks for the current market environment:
- 8 stocks to buy
- 1 stock to short
- 1 ETF to buy
All the stocks have been selected using the proven outperformance that comes from our POWR Ratings stock selection model which has done 4X better than the S&P 500 since 1999.
Now add in my 44 years of investing experience seeing bull markets...bear markets...and everything between. This helps me pick the right stocks for the current environment.
If you are curious to learn more, and want to see my current 10 recommendations, then please click the link below to get started now.
Steve Reitmeister’s Trading Plan & Top 10 Recommendations >
Wishing you a world of investment success!
SPY shares were trading at $605.47 per share on Tuesday afternoon, up $0.62 (+0.10%). Year-to-date, SPY has gained 3.31%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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