When President Donald Trump was asked on Friday about his tariff policies, he said: "I didn’t change my mind. I don’t change. But the word flexibility is an important word. Sometimes there's flexibility. So there will be flexibility, but basically it's reciprocal." A WSJ article posted at 5:26 pm today is titled, "White House Narrows April 2 Tariffs." It reports: "The administration is now focusing on applying tariffs to about 15% of nations with persistent trade imbalances with the U.S.—a so-called “dirty 15,” as Treasury Secretary Scott Bessent put it last week." The tariffs might be effective immediately on April 2. Furthermore: "The administration’s shift comes after weeks of tough talk with trading partners and U.S. industries alike. Officials from Canada and Mexico said they were told there was no way to avoid reciprocal tariffs ahead of April 2, though they hoped Trump would be open to reducing tariffs through negotiations after that date."

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March 23, 2025

QuickTakes

'There Will Be Flexibility'

When President Donald Trump was asked on Friday about his tariff policies, he said: "I didn’t change my mind. I don’t change. But the word ‘flexibility’ is an important word. Sometimes there's flexibility. So there will be flexibility, but basically it's reciprocal." A WSJ article posted at 5:26 pm today is titled "White House Narrows April 2 Tariffs." It reports: "The administration is now focusing on applying tariffs to about 15% of nations with persistent trade imbalances with the U.S.—a so-called “dirty 15,” as Treasury Secretary Scott Bessent put it last week." The tariffs might be effective immediately on April 2. Furthermore: "The administration’s shift comes after weeks of tough talk with trading partners and U.S. industries alike. Officials from Canada and Mexico said they were told there was no way to avoid reciprocal tariffs ahead of April 2, though they hoped Trump would be open to reducing tariffs through negotiations after that date."

The stock market may be bottoming on the prospects that the tariffs might be more targeted and negotiable. Trump certainly provided a one-day Trump Put on Friday, when the S&P 500 dropped sharply on the open but rallied to close slightly above Thursday's close.

We still expect the stock market to be choppy through mid-year, but it could be choppier to the upside now that it has been choppy to the downside since mid-February. Over the past 10 years, March has been a weak month for the S&P 500, with a zero return on a year-to-date basis on average (chart). Then the index rallied by six percentage points on average through late July.

The bottoming action has been widespread among the major market indexes in recent days (chart). We think that better-than-expected US economic growth during the spring will help to solidify these bottoms.

We also expect that the intense rotation from a Stay Home strategy to Go Global might reverse for a while (chart). Again, we expect that economic growth will look better in the US than overseas in coming months. If so, then the dollar could also strengthen. The consensus view is too pessimistic on the US and too optimistic on China and Germany, in our opinion.

What about FedEx? Late Thursday, the company cut its profit outlook for a third straight quarter, saying that it reflected "continued weakness and uncertainty in the U.S. industrial economy." FedEx may no longer be a very good bellwether of the US economy. The forward earnings of the S&P 500 Air Freight & Logistics stock price index closely tracked the forward earnings of the S&P 500 in the past (chart). They've increasingly diverged since 2022 as the former fell while the latter rose to new record highs since 2023. We think this divergence reflects weaker economic growth overseas compared to the US.

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