Is the tariff range trade back in US equities?

When SPX 6000 came and went without a concerted effort from Donald Trump to rekindle trade tensions and otherwise make uncertainty reign again (“MURA!”), some suggested he’d shaken the inclination to view domestic equity strength as leeway to push the tariff envelope. After this week, investors may need to consider the possibility that he’s back to “‘selling the call’ at the highs, leaning in on tariff rhetoric when the market gives it to him,” as Nomura’s Charlie McElligott put it.

In February, Trump suggested Americans should be prepared to take some “pain” as he pursued economic nationalism ostensibly designed to rebalance trade flows in the service of sweeping domestic re-industrialization. Maybe the country was willing to suffer for the greater good, maybe not, but as is turned out, Trump’s pain threshold was quite low: SPX 5000 and 4.50% 10s.

No sooner had US equities fallen to the brink of a bear market than Trump began to backpedal. By late-May, his multiplying retreats were meme fodder: He was the “TACO” man. Because “Trump Always Chickens Out.”

When a reporter told him about TACO, Trump was visibly irate, but rather than re-escalate to disprove the meme and defend his honor, Trump let it slide for a month and a half, knowing that come July 9 — the day his 90-day “pause” on the “reciprocal” levies originally announced in early-April expired — he’d have an opportunity to dial up the temperature, SPX permitting.

This time last week, I wrote that the stock rally from the post-“Liberation Day” mini-bear market “gives Trump a lot of SPX points to burn” if he wants to reestablish his mercantilist machismo bona fides. He got right to work on Monday, sending out the first in a series of poorly-written letters dictating very high tariff rates to America’s trade partners.

Traders didn’t get too worked up. Not initially. Trump extended the negotiation deadline from July 9 to August 1, opening the door to deals with countries that really “matter.” Countries like Japan and South Korea.

By Wednesday, though, it was apparent that Trump had designs on shaking things up. In a truly brazen move with Pandora’s box potential, he threatened Brazil’s Lula with a 50% tariff unless the country drops judicial proceedings against Jair Bolsonaro. Then, late Thursday, Trump threatened Canada with a 35% tariff (with a carveout for USMCA goods) and told NBC he’s considering an across-the-board levy of as much as 20% for “remaining countries,” which I assume means nations who didn’t get a letter this week.

The situation with Canada devolved into abject farce months ago when Trump repeatedly suggested the US should absorb its northern neighbor. His excuses for bullying Canada are almost entirely vacuous. On Thursday, he told Mark Carney that Canada needs to do more to “stop the flow of fentanyl” into the US, and although Carney’s graciously entertaining Trump’s implicit accusations (i.e., letting Trump perpetuate the notion that Canada’s in part responsible for America’s opioid crisis), Ottawa knows full well that America’s a net fentanyl exporter to Canada.

The details scarcely matter. Everyone knows Trump’s tariffs are just protectionism for the sake of it, and after this week, we know he’s inclined to use tariffs as a tool to influence political outcomes and even legal proceedings in foreign jurisdictions, even when America runs a trade surplus with other countries as it does with Brazil.

In the NBC interview mentioned above, Trump described an off-the-cuff approach to blanket tariffs. “We’re just going to say all of the remaining countries are going to pay, whether it’s 20% or 15%,” he said, suggesting the administration’s no longer interested in justifying or explaining tariff rates.

Whether this week’s bombast — which, lest we should forget, also included a 50% tariff on imported copper and the threat of a 200% levy on pharmaceuticals — is enough to throw stocks for a loop will depend in part on how earnings shape up.

Reporting season kicks off in earnest next week. As long as profits stay healthy and companies are comfortable enough to offer constructive guides, the S&P will probably be ok. At least until the first week of August, when a challenging vol seasonal will collide head-on with the expiration of Trump’s latest tariff deadline.

If you’re wondering whether Trump’s taking the S&P into consideration as he evaluates America’s tolerance for renewed trade tensions, just ask him. “I think the tariffs have been very well-received,” he told NBC on Thursday. “The stock market hit a new high today.”