Trump is doing it again

Author

Pete Tan
February 20, 2025

It used to be just the Fed that influences the market prices but now, there is a new sheriff in town - Donald Trump.

Lets talk about the latest Fed minutes that just came out and Trump’s latest tariffs. It is important to know what these market movers are thinking.

What Happened?

In its latest minutes, the Federal Reserve signaled that it will hold off on further interest rate cuts until there is more progress on inflation. At the same time, President Trump has announced plans to impose significant tariffs, including potential 25% duties on autos and semiconductors , as early as April 2nd. These tariffs aim to incentivize foreign companies to establish manufacturing plants in the U.S., boosting domestic production and jobs.

Key Points from the Fed and Trump’s Tariff Threat

  1. No Rush to Cut Rates:

    • The Fed emphasized that current monetary policy is less restrictive than before recent rate cuts, giving them room to wait and assess economic conditions.

    • Further progress on inflation is needed before additional rate cuts are considered.

  2. Concerns About Tariffs:

    • Policymakers expressed worries that Trump’s tariffs could lead to higher input costs for businesses, which may then be passed on to consumers.

    • They noted “upside risks to the inflation outlook,” citing potential changes in trade and immigration policy as key factors.

  3. Trump’s Tariff Details:

    • Target Sectors: Foreign cars and semiconductor chips, critical components in modern technology and manufacturing.

    • Tariff Rate: A significant 25% tariff is being proposed, which could substantially increase the cost of imported goods.

    • Timeline: An announcement is expected around April 2nd, suggesting a potentially swift implementation.

    • Rationale: To incentivize foreign companies to establish manufacturing plants within the U.S., boosting domestic production and jobs.

  4. Mixed Economic Indicators:

    • While consumer prices rose more than expected in January, wholesale prices indicated softer pipeline pressures. This mixed data makes it harder to predict the trajectory of inflation.

  5. Optimism Amid Uncertainty:

    • Despite concerns, there was “substantial optimism” about the economic outlook, driven by expectations of reduced regulations and potential tax cuts under the Trump administration.

How Will This Impact the Stock Market?

  1. Delayed Rate Cuts:

    • With the Fed signaling caution, rate cuts may not come as quickly as markets had hoped. This could weigh on growth-sensitive sectors like technology, which thrive in low-rate environments.

    • However, sectors like financials (banks, insurance) may benefit from higher-for-longer rates, as they can charge more for loans and generate better margins.

  2. Tariffs and Inflation Risks:

    • Trump’s proposed tariffs could increase costs for companies reliant on imports, particularly in industries like autos, semiconductors, and pharmaceuticals. This could squeeze profit margins and lead to higher prices for consumers.

    • Stocks in these sectors may face headwinds, while domestic manufacturers might see some tailwinds if tariffs reduce competition from foreign firms.

  3. Market Volatility:

    • The combination of uncertainty around tariffs and the Fed’s cautious tone could lead to increased market volatility. Investors may see sharper swings as they digest conflicting signals about inflation, trade, and monetary policy.

  4. Sector Rotation Opportunities:

    • Defensive sectors like consumer staples and utilities could outperform if inflation fears persist, as investors seek safer havens.

    • Conversely, cyclical sectors tied to economic growth (e.g., industrials, materials) may struggle if tariffs dampen global trade and economic activity.

How Should Investors React?

  1. Stay Diversified:

    • If you are not studying deep into individual companies, given the uncertainty surrounding tariffs and interest rates, diversification remains your best defense. Spread your investments across sectors and asset classes to mitigate risk.

  2. Focus on Quality Businesses:

    • But if you are like me who prefers beating the market.

    • Look for companies with strong pricing power , consistent cash flow , and competitive advantages . These businesses are better equipped to navigate inflationary pressures and tariff-induced cost increases.

  3. Monitor Trade-Sensitive Sectors:

    • Keep an eye on industries directly impacted by tariffs, such as autos, semiconductors, and pharmaceuticals. Companies with significant exposure to international supply chains may face challenges, while domestic-focused firms could benefit.

  4. Be Patient with Rate Cuts:

    • Don’t get caught up in speculation about when the next rate cut will happen. Instead, focus on long-term fundamentals and let the Fed’s data-dependent approach play out.

  5. Leverage SMG Insights:

    • At Stock Market Genius (SMG) , we’re closely monitoring these developments to identify opportunities and risks. Our goal is to help you stay ahead of the curve with actionable insights and trade ideas tailored to the current environment.

Additional Market Highlights

  • Palantir (PLTR): Shares dropped 10% following a memo about potential defense budget cuts. As a company heavily reliant on government contracts, Palantir is particularly sensitive to shifts in defense spending.

  • Grab Holdings (GRAB): The Southeast Asian tech giant fell over 10% due to weaker-than-expected growth figures and concerns about driver incentive costs impacting revenue. Retail investors also reacted negatively to the lack of a buyback announcement.

  • Apple (AAPL): Announced the iPhone 16e, featuring its first in-house cellular chip, the C1. This marks a major step toward reducing reliance on Qualcomm, though Apple will still need to pay licensing fees for mobile patents. The inclusion of the C1 chip positions Apple to test its capabilities before broader adoption in future models.

Final Thoughts

The interplay between the Fed’s cautious stance and Trump’s tariff policies creates both challenges and opportunities for investors. While inflation risks and trade tensions could weigh on certain sectors, proactive investors who focus on quality businesses and adapt to changing conditions can still find success.

If you’re not already part of the SMG community , now is the perfect time to join. Get access to exclusive stock analyses, trade ideas, and monthly livestreams where I break down the latest market trends and answer your questions live.

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Speaking of livestreams, this month’s livestream is happening TODAY at 9pm. You are still in time to join us.

Let’s navigate these uncertain times together and position your portfolio for long-term growth.

Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.