Here's the Deal - May 12, 2025

Economy: In early Recessionary Phase (Not necessarily a recession, yet.)

Market Cycle: Bullish.

_{Week 19 of 52 for 2025: 36.54% of the way through 2025}

Fed leaves rates unchanged.

As expected, the Fed opted to leave the Fed Fund Rate unchanged at 4.25% - 4.5% on Wednesday. And as repeatedly pointed out in Here’s the Deal with the data to prove it, it was the correct decision as it is what is best for the US Economy at this point in time.

Below is a quick write-up from the notes from Wednesday’s announcement and press conference:

While President Trump this week claimed that talking to Fed Chairman Jerome Powell is like talking to a wall, in truth it’s a bit like how a five year old feels when they can’t have ice cream for dinner every night.

But the other Central Banks are cutting, so why not the US??

Just because other central banks like the European Central Bank (ECB) are cutting interest rates doesn’t mean the U.S. should do the same. That’s because we’re dealing with different economic systems and different problems.

One major difference? The U.S. government has chosen to impose new taxes and costs on consumers and businesses via new heavy tariff rates. Most other countries haven’t done that. So while they are facing an economic situation where rate cuts are warranted due to lower inflation rates, the US in not in the same situation and that is self-inflicted.

Nick Timiraos had a solid piece in the Wall Street Journal this week digging deeper into this.

As I keep pointing out, the irony is that the Fed would be very close to cutting rates if not for the current tariff debacle.

This week in tariffs.

President Trump kicked off the week with one of his most unusual tariff proposals yet: placing tariffs on movies filmed outside the United States.

This move of claiming everything is a national security threat is beginning to resemble a classic “boy who cried wolf” scenario.

Meanwhile, Ford announced it will raise prices on three vehicle models assembled in Mexico due to the impact of tariffs. This is yet more real-world evidence that tariffs function as a hidden tax on American consumers and that they are inflationary.

The administration is also facing it’s first major legal challenge on tariffs this week. At stake is whether the President can bypass Congress to impose tariffs by simply labeling something a national security concern. This case could have major ramifications on the limits of executive power in trade policy, something which is supposed to be under Congress’ authority according to the Constitution.

Oversold and Under-delivered

After teasing a “Major” and “comprehensive” trade deal earlier in the week, it became clear that the administration actually came up lame on the deal once there was time to go through it.

Unfortunately, the trade agreement between the U.S. and U.K. announced this week entitled the “Economic Prosperity Deal” came up way short of what was being touted beforehand.

This isn’t a full-blown, comprehensive trade agreement like the U.S. has made with other countries in the past century. Instead, it’s a limited, sector-specific agreement aimed at rolling back a few recent tariffs and boosting select industries on both sides.

What’s Actually in the Deal:

Tariff Reductions:

• U.S. tariffs on British cars drop from 27.5% to 10%, but only for up to 100,000 vehicles per year.

• Tariffs on U.K. steel and aluminum exports are eliminated.

• The U.K. removes tariffs on U.S. ethanol, and opens up access to U.S. beef and industrial machinery. An estimated $5 billion in new U.S. exports.

Other Key Provisions:

• U.K. agrees to fast-track U.S. goods through customs and reduce other trade barriers.

• A $10 billion Boeing aircraft parts purchase is part of the deal.

• They also agree to set up a “secure supply chain” for pharmaceuticals.

Both sides say they’ll keep talking about broader trade access in the future.

Not a “Trade Deal” by historical standards.

• It’s not a comprehensive free trade agreement covering all goods, services, and regulatory rules.

• It mainly rolls back recent tariffs, rather than creating a long-term framework for trade.

• Many of the “general terms” are not legally binding, and much still needs to be negotiated.

What It Means for the U.S.:

Pros:

• U.S. exporters, especially farmers and manufacturers, gain access to new opportunities, estimated at around $5 billion.

• The aerospace and pharmaceutical sectors get supply chain advantages.

• It signals a possible step back from extreme tariff policies, which could ease trade tensions globally.

• The administration claims the deal will protect or create jobs in some export-heavy sectors.

Cons:

• It leaves most tariffs intact, including a 10% baseline on U.K. imports. Far from the pre-2025 environment.

• No major price relief for U.S. consumers as tariffs that drive up prices are mostly still in place.

• Services and regulatory alignment (key parts of modern trade deals) are completely missing.

• It’s temporary and vague with no clear path to becoming a full trade agreement.

Here’s the weird part. The U.S. already sells more to the U.K. than it imports from them, which means the US already has a trade surplus with the UK.

That matters because the Trump Administration has often justified tariffs by saying they’re needed to fix “unfair trade deficits,” and that the goal is to have equal trade with trade partners. So how exactly is this a major win for the US?

Yet more proof that there’s no consistent strategy from the Trump Administration. No clear end goal.

This isn’t a sweeping trade breakthrough. It’s a narrow, tactical rollback of select tariffs (imposed last month by the Trump Administration) that benefits a few industries, leaves most barriers in place, and doesn’t change the overall trade relationship in a meaningful way. In reality, it’s more of a PR move than a policy win. A rookie businessperson move of over-promising and under-delivering.

To be honest, I found the announcement of the so-called “trade deal” deeply disappointing after being very optimistic about it initially. It felt more like a desperate attempt to claim a win than a meaningful achievement.

Think of it this way: imagine a business owner being told by an employee that a major new partnership had been secured. Only to find out that all they did was agree to talk and maybe work out a few details later. And not with a new client, but with one of the company’s biggest, long-standing customers.

That’s major letdown, not a win.

The Trump Administration can’t afford to keep announcing hollow victories like this. Doing so risks further eroding of trust from other countries, global markets, investors, and constituents. If they continue to be seen as unreliable or unserious then commerce will continue to slow down, companies will continue to hesitate, and confidence will continue to drop until time eventually runs out on their credibility.

We’re at a pivotal moment. What the U.S. needs right now is smart, steady, and well-informed leadership. Unfortunately, we keep falling short in electing officials because too few care enough to do the research necessary as opposed to taking the easy way out by picking the “R” team or the “D” team. That shortfall will eventually have real consequences if not remedied.

U.S.–China Trade Talks: What to Expect This Weekend

U.S. Treasury Secretary Scott Bessent flew to Switzerland on Thursday for trade talks with China over the weekend. The first serious conversation between the two countries since President Trump’s “Liberation Day” fiasco.

The good news is that the administration decided to leave Peter Navarro, one of the more combative and uninformed voices in the administration on trade, at home. That and the fact that Bessent has continued to lead trade talks and US strategy gives some reason for cautious optimism.

This is a crucial weekend for the administration after the dud that was the U.S./U.K. “trade deal.” The Trump administration is in desperate need of a real win. While a full trade deal with China this weekend is highly unlikely, here’s some idea of what could count as “progress”:

• A basic framework for future trade negotiations.

• Small but tangible agreements, especially around supply chains or market access.

• At the very least, a joint understanding, or even a commitment, on cracking down on fentanyl trafficking.

What Would Be “Enough”?

Given the low expectations, even a non-binding framework would help reset the tone and give markets and businesses some clarity. While some sort of an agreement on fentanyl, even if limited in scope, would give the administration something concrete to point to which might be just enough to declare a symbolic victory.

No one’s expecting a breakthrough, but the absence of Navarro, a constructive tone, and a few small wins would go a long way in calming tensions and giving the administration something to show for the effort.

Some other good news is that the bar is low due to the horrendous performance from the administration on trade thus far.

(Update: An agreement was reached with China to reduce their tariff rate down to 30% from 145%. While it is being touted as a major win at the moment, the proof will be in the details that come out over the next few days as was the case with the US/UK “trade deal” announced last week.")

April’s inflation reports come out this week.

Both CPI (Consumer Price Index) and PPI (Producer Price Index) from April report this week.

While recent tariffs will eventually influence inflation, their immediate effect on April's data is expected to be minimal. Many of these tariffs only took effect in April, and businesses often have existing inventories that delay price adjustments. It is likely that any significant inflationary impacts from tariffs will become more evident in the coming months.

Markets:

As of Sunday afternoon, Scott Bessent described this weekend’s trade talks between the U.S. and China as “productive,” and said more details would be unveiled Monday morning.

What I’ll be watching for is whether the Trump administration continues its pattern of exaggerating how much progress was actually made. Ultimately, how the markets respond in the long run will depend on what was truly accomplished, not just the initial headlines. Although this market seems like it wants to run higher, so any positive news could be explosive initially.

If the news is seen as positive, I expect the markets to open the week strong before giving back some of the recent move before moving higher again later this week or next week.

But if it turns out the talks were more tense than reported and that the two sides are still far apart, that could be enough to drag markets down to retest the April lows.

$SPY ( ▲ 0.5% ) S&P 500:

Last week I stated that my thought at this point is $571ish, down to $556ish, then back to at least $586ish. SPY failed to get to $571 twice last week. First getting to $568.38 before retracing to $556.04, before running back to $570.31 on Thursday which is where it peaked out for the week.

Now, $563 is a major level on multiple timeframes, so it has my serious attention here as I believe it is the ultimate line in the sand for the market’s next move. If it can maintain above there and then take out $576.41 on this shorter term uptrend, then I will look for a test and confirmation somewhere between $550 - $510 to load back up and get much more aggressive. I realize that is a big range, but we are more than likely a few weeks out from there, so it will tighten as we get closer to that time.

But for now, crucial to hold $563 and then to get above $576.41 before the markets retraces this current move off of April’s low.

While a failure at $563 hold of $550ish and then take out of $576.41 still works to remain bullish the coming weeks and months, that would also confirm to me the markets weakening condition. Still strong, but deteriorating in strength.

$DIA ( ▲ 0.94% ) Dow Jones Industrial Average:

$QQQ ( ▲ 0.34% ) Nasdaq:

$IWM ( ▲ 0.03% ) Russell 2000 (Small Caps):

If markets perform well in May, look to small caps for some big pops higher during the month. Whether they end up holding those gains is another story, but definitely some good looking opportunities there for those who have developed a consistently profitable trading system.

Looking for support around $195ish for a push back up to $210ish.

(Update: Markets are rocketing higher to begin the week on the news out of Geneva regarding the US/China trade talks. While I would not be surprised if it turned into a “sell the news” event Monday or Tuesday, SPY is firmly above $576.41 in the pre-market so things look good for the markets in the coming weeks.)

Significant Economic Data from the previous week:

Economic Data to watch this week:

Quote of the Week:

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