Tariffs, Threats, and Market Resilience – What’s Really Happening?

Tariffs are inflationary. Markets know it. So why aren’t they crashing?

KEY TAKEAWAYS

• Aesop’s fables provide timeless investing lessons—research, patience, and discipline win—and empty threats lead to lost credibility.
• Trump’s latest 25% tariff announcement targets cars, semiconductors, and pharmaceuticals.
• The market remains strong despite a wave of tariffs, likely because investors assume they’re just negotiation tactics.
• An event study shows that while markets dip on protectionist news, they tend to recover as policies get clarified.
• If Trump keeps using tariff threats without follow-through, he risks becoming The Boy Who Cried Wolf—losing credibility in future negotiations.

MY HOT TAKES

• Markets are treating Trump’s tariffs as empty threats—until they aren’t.
• Inflation risks are real, even if the market is ignoring them for now.
• The event study suggests that tariffs don’t always spook stocks, but that doesn’t mean they won’t have long-term consequences.
• If tariff threats lose credibility, future trade negotiations could get much harder.
• Aesop was basically an ancient Warren Buffett—his fables are investing gold.
  
  

Wolf, wolf, wolf!! Have you heard about the Crow and the Pitcher? No? How about the Goose That Laid Golden Eggs? Getting warmer? Closer to Wall Street? The Tortoise and the Hare? Aha, now you got it. These are all stories in my renowned book of Wall Street wisdom. One which I often share with you, my regular, beloved readers. Those are stories with investment morals. Research and patience beat out impulsive trading, chasing short-term promises eats into long-term gains, and disciplined, long-term focus always wins over short-term speculative trading, in order by stories listed above. All of these were contributed by the little-known Wall Street oracle Aesop. He is not some cool Managing Director or nerdy Chief Investment Officer 🤓 working in some firm or another. No, he first penned his wise adages like 500 BCE—that’s a long time ago.  Right, now you know, Aesop’s fables! Folks, literally every one of Aesop’s bangers can have a positive impact on your investing acumen. Story time over, time to get to the news.

Last night, WHILE YOU SLEPT, President Trump announced that he was likely to impose new 25% tariffs on Cars, semiconductors, and pharmaceuticals as soon as April 2^nd. Why April 2^nd? Probably because that is when freshly-minted Commerce Secretary Howard Lutnick will likely complete the study that he announced last week when we were introduced to the VAT tax, which would purportedly be less inflationary than tariffs—they aren’t. Remember that? Are you confused yet?

Let me give you a refresher. On February 1^st, the President signed executive orders imposing a 25% tariff on all imports from Canada (oil is only taxed at a 10% rate) and Mexico along with a 10% tariff on Chinese imports. A few days later, President Trump announced that Canada and Mexico were given a 30-day reprieve (announced on February 3^rd), but Chinese imports are currently being taxed. On February 10^th, the President issued proclamations raising steel and aluminum tariffs to 25% for all importers; these will go into effect on March 12^th. On February 13^th, the President announced that a reciprocal tax would be levied on products from all countries that have tariffs higher than the US’s; those are due to go into effect sometime in April. And then there was last night's tariff. So, what does it all mean for us?

I think that by now, we all know that tariffs, WHICH ARE CHARGED TO US IMPORTERS AND NOT PAID BY FOREIGN GOVERNMENTS, are indeed inflationary at one level or another. Even the President himself, has acknowledged as much. One would think that given all these potentially harmful tariff announcements that the market would have been negatively impacted. That is a nice way of saying “gotten smacked.” 😉 But, alas, the S&P500 and Nasdaq 100 both closed at all-time highs yesterday. How can that be? Well, earnings season might have helped a bit. To date, S&P500 earnings have grown by 10.7% which is a lot better than the 6.4% growth from the previous quarter. But still 25% tariffs are sure to wreak havoc on corporate earnings and likely cripple supply chains! These announcements must have stock investors worried, right? Well, there is only one way to find out—an event study. This one is for my academic friends. 😉 Check out the following table and keep reading.

There you go. Five events along with the S&P500 returns on the day of the announcement and the day after. To get a feel for what that looks like on a stock chart, check out this next chart, then follow me to the finish. Go on, check it out.

Now, looking at the chart, you can probably glean all the insights necessary. Now of course, the last event is not quite over yet, but one can easily see that our mini-non-academic-strength event study basically concluded that the President’s tariff announcements had mixed effects on the S&P 500, with initial declines on protectionist measures but some recoveries following policy clarifications. I think that means… um, no meaningful negative effect.

To make this complete, but still not academically rigorous, we must posit a reason for that “no meaningful negative effect” result. Well, perhaps the market thinks that Trump is just using these tariff threats as just that, threats, deployed to exact concessions in a negotiation. Well, history has shown us that it worked with Mexico in 2019 and again a few weeks back when Mexico offered concessions. Also, more recently, we observed how the Administration used the threat of tariffs on Honduras forcing it to accept extradited criminals. Aha! That must be it. The market assumes that the President will not actually carry out his threats. So, if the market assumes this, how can these threats continue to hold weight against the US’s opponents?

That brings me to another great fable from Wall Street icon Aesop. Perhaps you have heard of the Boy Who Cried Wolf? That one didn’t end well for the antagonist, the shepherd boy. The fable is not clear on whether the boy, his sheep, or both were eaten by the antagonist, the wolf, but the outcome was probably not suitable for my PG-rated note. In any case, it would seem, at the moment, that tariffs are an effective bargaining chip. The question is, how long will that last?

YESTERDAY’S MARKETS

Stocks jumped to new highs in the last minutes of a choppy day of trading as investors looked to snap up value stocks. Beaten down sectors outperformed last year’s darling sectors held back by rising bond yields. According to the latest survey from the National Association of Home Builders, sentiment hit a 4-month low as builders expressed concerns about high interest rates and tariffs affecting costs.

NEXT UP

• Housing Starts (January) may have slipped by -7.3% after jumping by 15.8% in December.
• Building Permits (January) are expected to have declined by -1.5% after a prior month slip of -0.7%. You have to get a permit to start building, so this is a leading indicator of housing starts. 😉
• The Fed will release minutes from its January 29^th FOMC meeting at 2:00 PM Wall Street Time. This will be carefully scrutinized to gauge members’ penchants to future rate cuts. Additionally Fed watchers will look for the level of focus on Trump’s policies and their effects on inflation. Markets are decidedly assigning a slightly hawkish bent to the FOMC at the moment which can either be supported (bearish) or weakened (bullish). What I am really saying is don’t be surprised if this becomes a market mover.
• Important earnings announcements today: Wingstop, Etsy, Analog Devices, Carvana, Herbalife, and Texas Pacific Land Corp.

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