Last week, the US imposed reciprocal tariffs — ranging from 10% to 41% — on imports from 69 countries and the European Union.  In addition, Donald Trump announced plans to introduce a 100% tariff on imported chips and semiconductors, and an even higher percentage on all pharmaceutical imports.

Now, if exporters were the ones paying, the markets would have no problem. But these are import tariffs, meaning higher costs will fall on households. In fact, consumers already bear about 22% of the expenses related to tariffs in June. Even so, the markets do not seem too concerned about that.

Neither the S&P 500 nor the Nasdaq reacted much to last week’s tariff announcement. One possible reason could be optimism about the president’s so-called TACO initiative, coupled with hopes that, despite everything, the Federal Reserve will continue to lower rates at its September meeting.

However, there could be another long-standing factor supporting the market: corporate buybacks. Since January this year, companies have announced buyback programs worth more than $980 billion, the highest figure since 1982, and this is expected to exceed $1.1 trillion by the end of the year.

The earnings season has also been encouraging. According to FactSet, 90% of S&P 500 companies have reported their Q2 results. Of those, 81% exceeded EPS estimates, above the five-year average of 78% and the ten-year average of 75%. More importantly, companies do not expect a disaster in the near future.

S&P 500 to 7,000?

While analysts continue to find reasons why the market should fall (and, to be fair, there are many), stocks keep surging. The problem is that, without healthy pullbacks, it is difficult to consider this a sustainable trend. Thus, the fall could be much more pronounced when the bad news finally arrives.
The first test will be the CPI report on Tuesday and the PPI report on Thursday. On Friday, Trump will meet with Putin. However, the most anticipated event this month is probably Nvidia’s quarterly earnings report on August 27. If the results disappoint, as in the case of AMD, it could trigger a sell-off across the US market.

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This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
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