The Impact of Tariffs Is Just Beginning
On February 1st, U.S. President Trump signed an executive order imposing 10% tariffs on Chinese imports and 25% tariffs on Mexican and Canadian imports (excluding energy), though later suspended the Mexico and Canada tariffs for one month.
Compared to tariffs, the Deepseek issue is minor. Here's the comprehensive impact:
Canada, Mexico, and China account for about 42% of U.S. imports and are crucial components of S&P 500 companies' supply chains and revenue. The impact of these tariffs could be several times greater than the 2018-2019 situation.
The scale of these tariffs is approximately five times the cumulative total of trade actions taken during Trump's first administration (measured by average tariff increases).
U.S. stocks may face pressure, with tariffs reducing earnings per share and potentially affecting valuations. Services sector should outperform consumer goods.
The Trump administration aims to bring manufacturing back to the U.S., with tariffs on specific goods (like semiconductors, automobiles, steel, aluminum, and copper) potentially lasting longer.
Tariffs will push up U.S. inflation levels, though the Federal Reserve may keep rates unchanged.
Look at $.SPX(.SPX)$ performance from 2018 to 2019 to imagine what several times this impact might look like.
However, given the severe implications, markets don't believe all these measures will be implemented, viewing them as Trump's negotiating tactics. The current market rebound doesn't indicate all is well, but rather shows inadequate pricing of risks.
Friday's opening data shows this week's plan changed from targeting 130 to maintaining 120.
This week's open interest data suggests Friday has a good chance of closing above 120.
However, February 14th week options show severe polarization, likely maintaining 120 but with more volatile movements.
On Friday, January 31st, the previous 380 call option buyer returned, purchasing May expiry 400 calls $TSLA 20250516 400.0 CALL$ , opening 15,000 contracts.
This large order, similar to the $200 million NVIDIA order, might involve stock hedging operations. Tesla's excellent market cap management forces institutional business departments to continue opening positions.
Interestingly, the stock didn't drop on earnings but fell on tariff news. Despite analysts promoting AI concept stocks, tariff concerns prevailed, given the significant impact on auto parts supply chains.
Options activity suggests strong determination to maintain Tesla at 400 - let's see if they succeed this week.
Qualcomm & AMD Financial Reports
AMD's earnings were mediocre, with weak core business and less competitive AI offerings compared to NVIDIA. Consider selling calls if it opens higher - a typical AMD earnings pattern.
Qualcomm's earnings might be decent, but only for the first half of the year.
Retail Index ETF - SPDR S&P (XRT)
Previous XRT bullish positions need reevaluation given Trump's tariffs.
The broad 10% tariff presents the biggest risk: A universal 10% tariff on all imports poses the greatest risk to retailers, potentially reducing gross margins by 230 basis points for low-price goods and an additional 120 basis points for high-price goods.
Low-price retailers face the highest risk.
Tariff impacts will emerge in Q2: Though proposed tariffs take effect February 4th, profit margin impacts won't show for months due to retail sales lag, with pressure expected from Q2.
Notably, Trump's elimination of the $800 de minimis exemption significantly impacts PDD but benefits Amazon.
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