NEWS
Chat, Are we Cooked?

Friday is usually a calm day to review the week’s accomplishments and gracefully usher in the weekend. Instead, the day started with an intercontinental tariff missile response from China, and equities ended the session with one of the worst weeks for the S&P 500 since 2020. 💣️

Speaking of 2020, the VIX volatility index is at its highest since Covid. The carnage is not over yet, and depending on who you ask, it might get worse before it gets better. Looking at you, Powell. 👀

Today's issue covers Powell’s response to Trump’s tariffs, China’s returning salvo, and the industries hit the hardest. 📰

Here’s the S&P 500 heatmap. All sectors closed in the red, with real estate falling the least (-2%) and tech (-13%) lagging.

And here are the closing prices: 

STOCKS
Are we ‘Cooked’? Powell Responds 🐻 

If there is one voice of reason, it is found in the eternally calm voice of Federal Reserve President Jerome Powell. Placed in office by Trump during his first term, Powell has overseen the most aggressive rate hikes in a generation to combat the worst spike of inflation since the start of the new millennium. 📆 

Right before noon, Powell spoke at an Arlington, Va., conference for business writing and editing. He offered a remarkably frank and hawkish take on the tariff situation: We are in for pain, and the FOMC may not be able to do anything but watch for now.

He said he understood the desire for more economic progress despite the relatively low unemployment rate and the outsized progress toward combating inflation enjoyed by the U.S. compared to the rest of the world. 🌎️ 

"People are still experiencing that higher price level- prices are not going to go down," Powell said. "Unemployment is low, and the economy is doing well, but the price increases of the past few years are weighing on people's budgets."

Still, he said that the higher-than-expected tariffs will likely increase inflation in the short term. One journalist quoted a business owner, looking for a reaction: "If there is a hint of a recession, we're cooked." 

Powell said he does not make forecasts for recession at the Fed: "Uncertainty is high, tariffs are higher than almost anyone forecasted, but we still don't know the effects."

He added, "Inflation will be moving up, growth will be slowing," and that the Fed was in no hurry to move rates. One journalist said out loud, "Really?" 🤔 

Powell said it wasn’t clear what the path of monetary policy would be to address the new terms of engagement, but if one-time tariff price increases started looking like long-term inflation, they would have to act.

He might be right, given the high volatility: the market is still pricing in what tariffs mean. Friday, the SPY S&P 500 tracking ETF saw its third-biggest day ever. According to Eric Balchunas, Senior ETF Analyst for Bloomberg, anything over $60B in volume is what he calls “big fear.” 😱 

On Friday morning, Trump had a stated goal of convincing Powell it was time to cut rates, and the CME FedWatch futures tracking tool priced in four 25 bp rate cuts for the remainder of the year, twice the FOMC’s March estimates of two cuts.

Trump also reposted a TikTok message claiming he was purposely crashing the stock market. The message claimed Warren Buffett supported the move, which Berkshire Hathaway responded to with a statement: No, he did not. ⚔️