Weekly Market Commentary | February 18, 2025

The Markets

Why are stock markets wary of tariffs?

In two of the last three weeks, tariff announcements led to late week stock market sell-offs. Stocks quickly recovered lost value, but uncertainty about the administration’s trade policy and the potential impact of that policy on U.S. companies remained. That’s likely to be the case until it becomes clear whether the Trump administration sees tariffs as a negotiating tactic or a means to cover the cost of extending 2017 tax cuts.

If tariffs are a negotiating tactic and unlikely to be implemented, the effect on the U.S. economy, businesses, and stocks may be less significant than if tariffs are put in place. The Tax Foundation evaluated the administration’s proposal for a universal baseline tariff and reported, “the 10 percent tariff would generate $2 trillion of increased revenue, while the 20 percent tariff would generate $3.3 trillion over a decade.”

While increased tax revenue is alluring, the catch is that tariffs are taxes added to the prices of materials and goods purchased by American businesses. Often, the cost is passed on to consumers, reported Anshu Siripurapu and Noah Berman of the Council on Foreign Relations (CFR). As a result, the trillions of dollars that could be generated would come from American pockets. According to CFR estimates:

“A 25 percent tariff on Canada and Mexico will raise production costs for U.S. automakers, adding up to $3,000 to the price of some of the roughly sixteen million cars sold in the United States each year. Grocery costs could rise, too, as Mexico is the United States’ biggest source of fresh produce, supplying more than 60 percent of U.S. vegetable imports and nearly half of all fruit and nut imports.”

Higher prices may reduce demand for goods and services, slowing sales and reducing companies’ profits (and earnings). If earnings growth slows, publicly traded companies’ stock prices could be affected. David Kostin, chief U.S. equity strategist at Goldman Sachs Research reported, “...every five-percentage-point increase in the U.S. tariff rate is estimated to reduce [Standard & Poor’s 500 Index] earnings per share by roughly 1-2 [percent].” Goldman’s estimates suggest the 10 percent tariff placed on China in early February could raise the effective U.S. tariff rate by about 4.7 percentage points.

In addition, businesses may be vulnerable to retaliatory tariffs imposed by other nations. For example, “American farmers and ranchers incurred the most widespread damage from this retaliation following the 2018 tariffs. The damage was so great that the [first] Trump administration authorized $61 billion in emergency relief payments to cushion farmers and ranchers from the blow…an amount roughly equivalent to all of the tariff revenue collected from U.S. businesses,” reported Adam S. Hersh and Josh Bivens of The Economic Policy Institute.

Investors appeared to shrug off concerns about tariffs and trade wars last week. Denitsa Tsekova of Bloomberg reported, “This week’s vow for reciprocal tariffs comes not long after [President Trump] delayed threats against Canada and Mexico, signaling to many investors that he won’t take action that enacts lasting damage to Wall Street.”

Last week, higher than expected inflation numbers and weaker than expected retail sales data gave investors pause, but major U.S. stock indices finished the week higher. The yield on the benchmark 10-year U.S. Treasury moved lower over the week.

Data as of 2/14/25

Index	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 Index	1.5%	4.0%	22.3%	11.6%	12.6%	11.3%
Dow Jones Global ex-U.S. Index	1.9%	6.1%	11.1%	1.3%	3.0%	2.8%
10-year Treasury Note (yield only)	4.5%	N/A	4.3%	2.0%	1.6%	2.2%
Gold (per ounce)	1.6%	11.9%	47.2%	16.1%	13.1%	9.0%
Bloomberg Commodity Index	1.6%	7.2%	11.0%	-1.6%	7.0%	0.2%

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

What Do You Know About Buying a House?

First-time home buyers have a lot to think about. A house is a big investment, so it’s important to do the research and develop some checklists that can help you compare and evaluate the options available to you. One checklist might include key points to observe during home showings. For example, did you know it’s a good idea to begin your home tour in the basement (assuming the house has one)? If you find issues that significantly affect the structure’s integrity, end the tour there.

Here are a few things to consider:

• The inspection. Waiving an inspection can be costly, especially if the home has significant problems. One option is to include a home inspection “for informational purposes” in your contract. This means you won’t hold home sellers responsible for making repairs or fronting money for them, which could make sellers more likely to accept your offer. If the home has serious issues, you can back away from the sale, though your earnest money may be at risk.
• The neighborhood. Online research is helpful, but spend time in the community as well. Drive through the area, take walks at different times, and chat with people you meet. The more information you gather, the more confident you’ll be in your decision.
• Your actual monthly costs. Your mortgage payment is just one part of homeownership costs. Payments usually include property taxes and homeowner’s insurance, which are held in escrow and paid by the lender when due.

When you’re ready to buy a home, leverage your resources—including online research and friends and family members—to gather the information needed to make a sound decision.

Weekly Focus – Think About It

“In love of home, the love of country has its rise.”
—Charles Dickens, novelist