by Ivan Martchev
July 15, 2025
In the next two weeks, I expect we’ll see a lot of tariff headlines, with both good and bad news. It appears that the current threat is a 30% tariff on the EU and Mexico and 35% on Canada, all starting August 1st. If these nations choose to retaliate, any tariff could then be added on top of those rates.
The issue with Mexico is mostly a lack of progress on confronting drug cartels, and the issue with Canada and the EU is our trade deficits. Then we have China, South Korea and Japan to hear about, probably this week. So far, trade headlines have been negative, and the lack of any major trade deals is worrying me.
The S&P 500 made another marginal all-time high last week, but it finished the week lower due to the negative Canada trade headlines and the realization that trade talks with the EU have hit a snag.
Since some new tariff letters and offers came over the weekend, we have to see the market reaction this week. Then, we have the Consumer Price Index (CPI) to worry about. There has been no tariff inflation in the CPI numbers so far, as tariffs have not been “set,” so to speak, but the President has put them on and taken them off in order to advance his trade deals, which regrettably have not been finalized yet.
Because of the fierce rally off of the April lows, it would be normal to see a slope type of correction, with 6100 in the S&P 500 as my base case for a shallow correction, and 5900 possible with a deeper correction, reflecting any lack of trade negotiation progress. On the positive side, we have earnings reporting season heating up, which should provide support for the market, if earnings beat their estimates.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Negative seasonality kicks in often during August and September, but these long-term averages are only guidelines, not guarantees. Last year, we had a monstrous shake-out in July, followed by a strong August, a weak first week of September and a very strong remaining three weeks in September. If one were to look at the long-term trends, however, one would not expect to repeat the performance we got last year.
No matter how July and August perform this year, I would expect some type of a shallow correction before a stronger finish to the year – if the U.S. economy continues to hold up. The economy has been thrown a lot of curve balls by the Trump administration, mostly due to their noble goal to begin to remedy some horrific long-term trade imbalances. If we get out of this trade friction period with just a few market gyrations, I would say it would have been worth it, because I do view this as an economic emergency.
Also, the “one big, beautiful bill,” just signed into law, provides for fiscal stimulus and does not add to the deficits if we add in the expected tariff revenues. We should begin to feel the effect of the new tax law on business activity soon, and over the next year. And if we get two or three Fed rate cuts after the tariff noise is behind us, then the stock market should celebrate.
I believe that 7000 is reachable in the S&P 500 by year-end, if the trade war winds down, the Fed makes some rate cuts and we get some resolution to the Ukrainian situation this summer. President Trump wants the war to stop. President Putin wants his four Ukrainian provinces that are full of many ethnic Russians, as they are already officially annexed by Russian law – and if NATO guarantees to stop its expansion plans towards his borders. I don’t believe that any further sanctions will change Russia’s stated objectives.
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