June 26, 2025

QuickTakes

July 9 Trade Deals

Deadline 'Is Not Critical'

Stock prices got a boost around mid-day today when White House Press Secretary Karoline Leavitt told reporters during a briefing: “The President can simply provide these countries with a [trade] deal if they refuse to make us one by the deadline, and that means the President can pick a reciprocal tariff rate that he believes is advantageous for the United States and for the American worker.”

We've been observing and agreeing with the notion that the stock market rally since April 9 suggests that investors believe that the tariff issue will be mostly behind us by the end of the summer. On April 9, President Donald Trump postponed his April 2 Liberation Day reciprocal tariffs for 90 days. Today, that deadline has been rescinded.

Trump's Tariff Turmoil from April 2 through today (June 26) has had remarkably little impact on the forward profit margin of the S&P 500 so far (chart). It has been essentially flat since the start of this year but at roughly a record high of 13.7%.

That's remarkable since a tariff is first and foremost a tax on a company that imports goods. So the importer must send a check to the US Treasury to pay the duty on the imported goods. A 10% across-the-board tariff on all goods imports could potentially raise $400 billion over a 12-month period. For comparison, federal corporate tax receipts totaled $516.7 billion over the past 12 months (chart).

Industry analysts must be assuming that the S&P 500 companies broadly won't be hit that hard by Trump's tariffs. Reasons might be that many are not big importers, or that analysts expect the importers among them to pass much of their tariff hits onto their customers or vendors, or that companies might increase their productivity—with bottom-line benefits that effectively make up for some of the higher tariff costs.

Stock investors also must have been pleased by today's unemployment claims release. Initial claims fell 10,000 to 236,000 during the June 20 week, and continuing claims edged up 37,000 to 1.97 million during the June 14 week. Granted, the latter implies that the unemployment rate might uptick from 4.2% to 4.3% in June. But that's still a full employment rate, though it might push the bond yield down slightly on more bets that the Fed will cut the federal funds rate in July.

Indeed, the 10-year US Treasury bond yield fell to 4.24% this afternoon on speculation that the economy isn't as resilient as we believe and will need a boost from the Fed. The 4bps decline in the yield started right after Q1's real GDP report was released at 8:30 a.m. and showed a downward revision from -0.2% to -0.5%, primarily reflecting downward revisions to consumer spending and exports. The decrease in real GDP primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment and consumer spending (chart).

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