In a turn of events which would have been shocking virutally any other time in American history the administration finally agreed to a firm 90 day pause on the Chinese tariffs. "Firm" and "Pause" and "Deescalation" and, really, every word I'd normally apply to these type of announcements obviously come with a grain of a salt these days. This pause could be declared over by the time this note publishes.
Regardless, we've got a new playing field. It's time to reassess our situation and how it impacts our stocks.
The Field Position:
The XRT consumer index is gapping higher on Monday morning and now clearly forming what I call an Inverted Batman. Silly name, real chart. The basic idea is stocks plunge, first gradually (consumer stocks started breaking at the end of January) then with a smash (the Liberation Day crash). At that point they grind a bit. The Worst Case Scenario gets priced in. Optimism, guarded and cynical though it may be, builds until, finally, the fever breaks and folks start chasing higher.
To whit:
You can call the chart whatever you'd like but the price moves line-up quite neatly with the timeline of the tariff amounts and newsflow. From today's NY Times:
Damage has been done already, of course. "Consumer Stocks" is a big basket. Value has shifted from the weak to the strong. It was happening as investors were handicapping the possible outcomes prior to this weekend's news. Tariffs are higher than they were prior to this nightmare kicking into high gear. Earnings for the next couple quarters will be hit. That's the bear case.
Here's the bullish case: 145% was an embargo with China. It wasn't being called as much but no merchant was taking product from China with a 145% tariff. The supply chain was all but frozen. Whether the new rate is 20% or 39% or (most likely) something else entirely it's a level retailers can deal with, albeit unhappily.
90 days matters. Retailers order months in advance. Inventory levels get tweaked well into the Fall but as far as basic holiday orders go most of it is done over the next few months. Between shifting to lower cost suppliers and locking it rates over the next three months the dreaded "Empty Shelves, Lay-offs in Shipping Jobs" scenario is out the window.
Make no mistake: this 90 day pause saved a lot of jobs and more than a couple companies. Plenty will still die but far fewer than looked to be the case last week.
From a stock perspective we're going into the heart of retail reporting season with rock-bottom expectations. The numbers scarcely matter. It's all about management plan, flexibility, tone and execution. I love a market where management matters. That's a market for stock picking.
However the economy got to this point, we're a hell of a lot better off than we were three weeks ago. That's bullish. You don't have to chase it but Don't fight it. The NASDAQ is about to gap 3% higher. However you were positioned going into the week, it's already too late to reposition now. This is a time to assess your book and position for the current, possibly temporary, state of America.
I'll be breaking it down in terms of the Retail RoundUp portfolio positions later this morning. Until then, buckle up and enjoy the ride.
