May 25, 2025

QuickTakes

MARKET CALL: Buckle Up, Again

President Donald Trump is frustrated about his trade negotiations with the European Union: "Our discussions with them are going nowhere!" He said so on Friday morning, threatening to slap a 50% across-the-board tariff on America's largest trading partner in terms of imports starting next Sunday, June 1. The master of the art of the deal is imposing the deal. "I'm not looking for a deal," said Trump. "I mean, we've set the deal. It's at 50%." Treasury Secretary Scott Bessent added that he hopes that the tariff will "light a fire under the EU" in negotiations with Washington. He also said that he expects to announce more deals with America's other trading partners, who are negotiating in good faith.

Stock investors seem to be getting jaded about Trump's Tariff Turmoil (TTT). Investors must be assuming that Trump might change his mind again or maybe postpone this latest threatened tariff for 90 days. The S&P 500 was down by only 0.68% on Friday, while the Nasdaq fell 1.00% on Friday (chart). Investors were more perturbed by Trump's threat to impose a 25% tariff on imports of Apple's iPhones. That news sent the company's stock tumbling 3.03% on Friday.

Then again, MAGS (the Magnificent-7 ETF) fell only 1.43%, while XMAG (the ETF tracking the S&P 500 excluding the Magnificent-7) edged down just 0.46% (chart). Our mantra for dealing with TTT is still: "This too shall pass." We are maintaining our 6500 year-end target for the S&P 500. But stock investing is likely to continue to feel like riding a mechanical bull in a rowdy sports bar. Keep focused on not falling off the bull!

We still believe that Trump needs to declare victory in his trade war before the end of the summer to avoid a recession later this year that might threaten the Republicans' current slim majorities in both houses of Congress come next year's midterm elections. The risk is that he won't do so and that TTT will continue to weigh on S&P 500 forward earnings per share, which has stalled at a record high around $278 for the past several weeks (chart). To get to 6500 on the S&P 500 by the end of this year, we need forward earnings to climb to $300 with a forward P/E of 21.7.

Trump's latest Reign of Tariffs boosted the price of gold on Friday by $62.60 an ounce (chart). Friday morning, Goldman Sachs Research predicted that the gold price will rise to $3,700 an ounce by the end of 2025. We've been bullish on gold since our QuickTakes of January 30, when it broke out to a new record high of $2,851. Since April 17, we've been targeting $4,000 by the end of 2025 and $5,000 by the end of 2026, driven by global economic uncertainty and central bank gold purchases. 

On the other hand, we are somewhat puzzled by the recent strength of the price of copper given that TTT is weighing on global economic growth prospects, which the copper price usually reflects. Copper’s recent strength might be signaling a strong outlook for AI infrastructure, which requires lots of electricity carried over copper wires. Furthermore, on Friday, Trump signed four executive orders aimed at accelerating the construction of nuclear power plants to generate more electricity.

Finally, we note that the US imported a record $656.6 billion of merchandise from the European Union over the past 12 months (chart). That was boosted in recent months by US importers' front-running Trump's tariffs. The EU currently accounts for 18.7% of US merchandise imports.

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