Two weeks after Trump’s August 1st tweet stating he would impose a new round of tariff on Chinese imports starting September 1st his lackeys were forced to backtrack delaying move until December 15th. The pressure from a variety of businesses and advisors explained the new tariffs would hit U.S. consumers in the pocketbook.
Trump explained his reversal stating that he didn’t want to ruin Christmas by causing an increase in prices on popular gifts such as laptops, phones, clothes and basic toys. Of course, this completely contradicts his repeated claim that China is paying for all the tariffs and America is doing great by collecting that money. But hey, whatever.
The holiday season is crucial to many retailers; hence the origin of the term Black Friday to signify when these businesses finally turn a profit for the year.
Stocks initially jumped and nearly reclaimed all the losses incurred from the initial tweet. But, the flip-flopping, backtracking and general lack of any decipherable long term plan has left companies, and investors, thinking the pain has merely been delayed. It might actually be setting up for a worse scenario down the road.
Emblematic of the situation was the price action in Best Buy (BBY), which was one of the worst-hit, dropping over 10% on Aug. 1, only to recover nearly all the ground on the retraction.
But what’s disconcerting, and possibly telling of more bad times to come, is that the stock is now lower than the initial downdraft.
On some level, I’m sure retailers welcome reprieve. But, investors clearly don’t view it as a solution.
The tariffs create a host of difficult decisions to make, including how much they can raise prices before consumers balk and how much they can let tariffs eat into their profit margins before investors start running for the exits.
The Trump administration keeps proving itself impulsive and unpredictable on trade-related matters. This most recent tariff delay simply serves as a reminder that it will continue to be so.
The retail industry is already trying to navigate an extraordinary period of instability and change, given the rise of e-commerce, the fall of once-ubiquitous chains and other shifts in consumer preferences, such as the rise of healthier eating and lifestyles. It’s unfortunate that they have to add erratic trade policies to their list of potential stumbling blocks.
Stocks initially jumped and nearly reclaimed all the losses incurred from the initial tweet. But, the flip-flopping, backtracking and general lack of any decipherable long term plan has left companies, and investors, thinking the pain has merely been delayed. It might actually be set up for a worse scenario down the road.
SPY shares were trading at $288.99 per share on Friday afternoon, up $4.34 (+1.52%). Year-to-date, SPY has gained 16.71%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Option Sensei
Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...
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