Vital Knowledge's Adam Crisafulli: The market widely expects tariffs will be struck down

Key Concepts

• Fed Independence: The ability of the Federal Reserve to make monetary policy decisions without political interference.
• PCE (Personal Consumption Expenditures): The Federal Reserve’s preferred measure of inflation.
• Foundry Business (Intel): The manufacturing of semiconductors for other companies.
• Hawkish/Dovish Fed Expectations: Hawkish refers to expectations of the Fed raising interest rates to combat inflation; dovish refers to expectations of the Fed lowering rates to stimulate the economy.
• Tariff Replacement: The process of replacing existing tariffs with new ones, potentially under different legal statutes.
• SLB (Schlumberger): An oilfield services company with significant exposure to Venezuela and growing data center technology business.

Economic Calendar & Supreme Court Events – Next Week’s Focus

The upcoming week features a busy economic calendar, including the release of the PCE (Personal Consumption Expenditures) data – the Federal Reserve’s preferred inflation measure – and consumer sentiment figures on Friday. Beyond the standard economic indicators, two Supreme Court events are poised to significantly impact markets. The first is a hearing pertaining to Fed independence, which, surprisingly, received a boost this week despite ongoing legal challenges. The second is a ruling on tariffs, potentially arriving as early as Tuesday. The timing of this ruling is uncertain, but the market widely anticipates the current tariffs will be struck down.

The key question following a potential tariff ruling isn’t the removal of tariffs themselves, but the speed and aggressiveness with which the White House will implement replacements. The administration has indicated an initial 10% tariff replacement, followed by adjustments using other legal statutes. This suggests an initial reduction in the overall tariff burden, and potentially a delayed full reinstatement, especially given the White House’s focus on affordability programs leading up to the midterm elections.

Trump’s Housing Stimulus & Potential Wildcards

Donald Trump will be attending the Davos summit next week, where he plans to unveil a “big housing stimulus proposal.” While many details have already been publicly discussed, the potential for unforeseen elements remains. These Supreme Court rulings and the housing stimulus represent significant “wild cards” alongside the already scheduled economic data releases.

Earnings Watch: Intel & SLB – Specific Areas of Focus

Several earnings reports are particularly noteworthy. Intel is a key focus due to the recent rally driven by optimism surrounding its foundry business. Intel has invested heavily in semiconductor manufacturing for other companies, and investors are anticipating announcements of major new customers, which would signal the success of this strategic shift and contribute meaningfully to revenue.

SLB (Schlumberger)’s earnings report on Friday is also considered potentially insightful. SLB’s exposure to Venezuela, through its partnership with Chevron, makes its commentary on the ground situation particularly valuable, especially following the recent political developments regarding Maduro. Furthermore, SLB has been highlighting its growing exposure to the data center technology sector, which has also contributed to the stock’s performance. The company’s statements could provide a good indication of the pace of spending and production increases in Venezuela.

The PCE Data & Shifting Fed Expectations

The release of the PCE data is being approached with a degree of caution. With a new Fed Chair expected in the coming months, the significance of this single data point is somewhat diminished. However, recent data has led to a more hawkish shift in Fed expectations, with the market now pricing in a higher probability of the first rate cut occurring in July rather than June. The PCE data will be crucial in confirming this trend or potentially triggering a dovish reversal in expectations. The recent inflation numbers were slightly cooler than anticipated, but inflation remains above expectations.

Netflix: Company-Specific vs. Market Impact

Regarding Netflix’s earnings, the focus is expected to be more company-specific than market-wide. An update on the Warner bid process is also anticipated alongside the earnings report.

Logical Connections & Synthesis

The discussion highlights the interconnectedness of economic data, political events, and corporate earnings. The Supreme Court rulings on Fed independence and tariffs have the potential to reshape the economic landscape, influencing the Fed’s policy decisions and impacting corporate strategies. The earnings reports of companies like Intel and SLB provide granular insights into specific sectors and regions, offering a more nuanced understanding of the broader economic trends. The upcoming PCE data serves as a critical indicator of inflation, which will ultimately shape the Fed’s monetary policy path.

The overall takeaway is that the next week will be characterized by significant uncertainty and potential volatility, requiring investors to closely monitor a wide range of factors beyond the traditional economic calendar. The confluence of these events creates a complex environment where careful analysis and adaptability are paramount.

Quote: “You know, we've had there's been a pretty hawkish shift in Fed expectations in the last couple of weeks…But a big one a big part has been data.” – Adam, regarding the changing expectations for Federal Reserve policy.