Remember when everyone was playing the “Trump Always Chickens Out” (TACO) trade? Yeah, about that…
August 1st was supposed to be Trump’s “GREAT DAY FOR AMERICA” (his caps, not mine), but Wall Street is having more of a “meh, could be better” kind of day. After weeks of investors basically betting that Trump would soften his tariff stance like he’s done before, reality came knocking with a big ol’ executive order and some pretty underwhelming jobs numbers.
Here’s what went down: Trump actually followed through on his August 1st tariff deadline, slapping import duties ranging from 10% to 41% on various countries. Plot twist – he even threw in a 40% tariff on goods that try to sneak around by hopping between countries first. Sneaky, but not sneaky enough.
The market’s reaction? Let’s just say it wasn’t throwing confetti. The S&P 500 dropped 1.77%, the Dow fell over 500 points, and the Nasdaq decided to join the pity party with a 1.61% decline. Treasury yields also took a nosedive, with the 10-year bond yield falling 10 basis points to 4.25%.
But wait, there’s more! (And not in a good infomercial way.)
The July jobs report decided to crash the party too, showing the economy only added 73,000 jobs versus the expected 100,000. Even worse? They revised May and June’s numbers down by a combined 258,000 jobs. Ouch. The unemployment rate ticked up to 4.2%, which has everyone suddenly very interested in what the Fed might do in September.
Speaking of the Fed, remember how Jerome Powell was all hawkish earlier this week? Well, traders are now betting there’s a 67% chance of a rate cut in September, up from less than 50% on Wednesday. Nothing like some weak economic data to change minds faster than a teenager picking an outfit.
The tariff situation is still messier than a toddler’s art project. Some countries like Taiwan, India, and Malaysia actually got slight tariff reductions (lucky them), while Brazil and Switzerland saw increases. China? They’re still in timeout with their own August 12 deadline looming.
Trump did leave the door open for future deals, telling NBC it doesn’t mean “somebody doesn’t come along in four weeks and say we can make some kind of a deal.” Classic Trump – keeping everyone guessing.
Market strategists are trying to stay optimistic. Glen Smith from GSD Wealth Management reminded investors that “short-term swings can create good entry points for long-term investors.” Translation: This too shall pass, probably.
The bottom line? The TACO trade might be getting a bit stale. While Trump has backed down before, this time feels different. The combination of actual tariff implementation and a softening job market is giving investors a double dose of reality. Whether this is just another speed bump or the start of something bigger remains to be seen, but one thing’s for sure – August is off to an interesting start.