Tariff ruling rocks Trump’s trade agenda, and September volatility looms

• Stocks end lower, Nasdaq takes it on the chin.
• US Appeals Court strikes down reciprocal tariffs, Supreme Court is next.
• September brings all kinds of macro data. Friday is the NFP report.
• Gold, Oil and the VIX all surge. Bonds down, Yields Up.
• Try the Chicken Thighs and Mushrooms.

See you in September — that was the message on Friday as the last trading day of August came to a close. Stocks ended lower, with tech taking it on the chin (no surprise there), while the other indexes tried to hang on.

Keep in mind — volumes were anemic, a long weekend was about to kick off, and everyone was waiting on the U.S. Court of Appeals for the Federal Circuit to rule on Trump’s tariffs. Hardly the setup for fireworks. Still, it wasn’t a disaster by any stretch.

The Dow slipped 92 points, the S&P fell 41, and the Nasdaq — as noted, got punched in the gut — down 250 points or 1.1%. The Russell lost 12, the Transports finished flat, the Equal Weight S&P gave up 10, while the Mag 7 confirmed what the Nasdaq was already telling us — dropping 420 points, or 1.4%.

Then, just minutes after the closing bell, the news hit the tape. The timing was curious, but let’s leave that aside for now. A U.S. Appeals Court ruled that most of Trump’s tariffs are, in fact, “illegal” — undercutting one of the key pillars of his economic plan to reshape global trade.

To be clear – this ruling only affects the reciprocal tariffs imposed on countries as part of Trump’s trade war that began back on April 5th. In its decision, the court wrote:

“It seems unlikely that Congress intended, in enacting IEEPA (International Emergency Economic Powers Act), to depart from its past practice and grant the President unlimited authority to impose tariffs.”

Now, recall that this 1977 law has historically been used against enemies of the U.S. Trump, however, justified its use by pointing to massive trade imbalances, the decline of U.S. manufacturing, and the cross-border flow of drugs. He argued that tariffs against China, Mexico, and Canada were appropriate because those countries weren’t doing enough to stop the flood of illegal fentanyl into America — a charge they’ve all vehemently denied. Next stop - the Supreme Court.

In any event – summer is over (yes, the Christmas countdown has officially begun), and the real question now is: Is the market bracing for a September showdown?

This is when the big players — institutional investors, asset managers, hedge funds — begin rebalancing their portfolios, often sparking a pickup in volatility. History tells us September is the toughest month of the year, and while being cautious (as I’ve suggested) is always prudent, the “buy-the-dippers” have a way of swooping in to rescue the market whenever weakness shows up. But the question is — Will that continue and how long can that last?

We’re about to find out. The next two weeks will be critical. A flood of economic data is on deck and then we have the September FOMC (Federal Open Market Committee) meeting.

This week – September 2^nd – 5^th – we will get: Manufacturing & Services PMIs, Construction Spending, JOLTS, Factory Orders, Durable Goods, the Fed’s Beige Book, ADP Employment Change (+80k expected), Unit Labor Costs (+1.4%), and Friday’s BIGGIE — Non-Farm Payrolls. Consensus calls for a sub-100k print — just +75k new jobs. That’s not negative, but it may not be enough to convince investors that the expansion is intact. Unemployment is expected to tick up to 4.3% from the current 4.2% while Avg Hourly Earnings y/y are expected to be a bit weaker at +3.7% down from 3.9%. Taken alone – none of this screams ‘robust’.

Remember, economists generally cite 100,000–150,000 jobs per month as the baseline for sustaining growth and keeping unemployment steady. But the “right” number shifts with the backdrop — revisions, wage data, unemployment rates, you name it. July’s NFP was just +73k, and the prior two months were revised sharply lower — a miss that sent Trump and his team into a tailspin, screaming about the accuracy of the data.

And recall the market’s reaction on August 1^st when we got that news? The S&P dropped 100 points, the Nasdaq coughed up 450, and the Mag 7 outright choked — giving back 900 points. So, stay tuned.

Then next week – September 8 – 12^th brings the August PPI and CPI reports, along with Real Average Hourly & Weekly Earnings. By week’s end, we’ll also get the University of Michigan Sentiment Surveys. Recall, it was last month’s hotter than expected PPI that raised the warning flag about underlying inflation.

And then? It’s all about the FOMC meeting on September 16–17. Markets are pricing in an 87% chance of a 25-bps cut at that meeting, with an 80% chance of another 25-bps cut in December.

Now, let’s talk sectors. Here’s where we stand YTD:

Nasdaq +11%, S&P 500 +9.8%, Mag 7 +9.6%, Equal Weight S&P +7.4%, Industrials +7%, Russell 2000 +6.1%, Transports flat.

Sector Performance – Total Return YTD:

Communications +17.9%, Industrials +16.1%, Tech +14.0%, Utilities +13%, Financials +12.5%, Basic Materials +11.6%, Energy +7.5%, Real Estate + 5.6%, Consumer Staples +5.5%, Consumer Discretionary +2.0%, Healthcare +0.8%.

Down the Chain:

Homebuilders (XHB): +9%, Disruptive Tech (ARKK): +32%, Growth (SPYG): +13.2%, Emerging Markets (EEM): +19.2%, Metals & Miners (XME): +45%, Cybersecurity (CIBR): +15%, Semis (SOXX): +13.8%, Aerospace & Defense (XAR): +31%, Value (SPYV): +6.8%, Big Pharma (PPH): +3%, Airlines (JETS): +3.8% Oil Exploration & Production (XOP): +0.5% ….and the list goes on.

So, here’s the question: if the market stumbles in September, where do you think the money gets pulled from?

(Hint: not from the laggards. No one’s rushing to dump sectors that have been underperforming – LOL!). Now, in a severe meltdown, nothing is ‘safe’ but context matters: Underperforming sectors and defensive sectors aren’t immune to losses, even the “safe” names can decline — though typically less than the cyclical sectors.

Communications and Utilities, while generally defensive, have outperformed the broader market this year — making them prime candidates for profit-taking. By contrast, Consumer Staples and Healthcare, (also considered defensive) have lagged and would likely be less exposed to heavy selling pressure.

On the cyclical side — Consumer Discretionary, Industrials, Financials, Basic Materials, Tech, and Energy — most have outperformed, which means they’re far more vulnerable to waves of selling if volatility ramps up. ss long as you understand that — you’re good. Capisce?

Bonds lost ground on Friday — the TLT down 0.7% and the TLH off 0.4%. The 10-yr yield held steady at 4.23%, sitting right in the middle of support at 4.20% and resistance at 4.35%. Meanwhile, the 30-yr close at 4.93% and is inching ever closer to the 5% mark, a level that’s bound to rattle stocks if and when it breaks. This morning both bonds are down sending yields up. The 10 yr is up 4 bps at 4.27% while the 30 yr is up 4 bps as well, sending that yield to 4.97%. The next move in bonds will hinge on what this week’s macro data delivers.

Oil is up $1.77 or 2.8%, trading at $65.80 — breaking up and through trendline resistance at $65.10 setting us up for a swift move toward the August high of $69.

Gold, on the other hand, is on fire (again). It surged on Friday – up $42 to end the month at $3,516 and overnight it traded as high as $3,578 before backing off a bit. At 5 am- gold is up $30 - trading at $3,545. That puts us above the three prior highs at $3,530 and sets the stage for a run at the April peak of $3,585 – a level it kissed overnight. Traders are betting big that a rate cut is coming. The consensus is for 25 bps, but could gold’s message be that the market is leaning toward something closer to 50 bps? Are gold traders expecting the eco data to be weaker than expected? If so, then a larger rate cut would once again become the narrative, lower interest rates support higher commodity prices – think both oil and gold.

The VIX (fear index) is racing higher…..currently up 6.6% at 17.18. It is now above short-term trendline resistance at 16.15 and about to pierce the converging intermediate/long term trendlines at $19. If we pierce these – then brace yourself for a spurt higher in the VIX – to test the August high at 21.87 (up 27% from here) and a dip lower for stocks. Remember – Uncertainty/Chaos breeds fear, fear lifts the VIX, and when uncertainty/chaos spike, stocks typically fall, and investors run to the safety trade — gold.

This morning, U.S. futures are lower…..(you should not be surprised) — Dow -200, S&P -32, Nasdaq -150, and the Russell -18. Today marks both the first day of September and the final month of the quarter. From here, the economic data will be the main driver, while the latest tariff drama simmers quietly on the back burner.

You know me- I have been cautious and now I want to see how this plays out before committing any major new money to my portfolio. My expectation? September will be volatile. And with that in mind, I’m not making any big decisions just yet, I’m keeping my powder dry (as they say) looking for the pullback that we have been discussing.

The S&P closed August at 6,440 points, down 42 points on the day. Futures this morning suggest (maybe) the September swoon has begun. Remember – summer is over, everyone is back at their desks, volumes should rise as portfolio managers assess their state of affairs. The ones who are underinvested will need to put money to work while the ones who are ‘fully invested’ will take some money off the table. Let the games begin!

Chicken thighs in mushroom gravy

This is a one pan dinner and so easy to make.

You need: Boneless skinless thighs, olive oil (you can also use Avocado oil if you prefer), diced onion, 1lb of mushrooms (you can use baby bellas, button mushrooms, shitake mushrooms) but cut them thick, not too thin, s&p, 2 cloves of garlic - chopped, fresh thyme, chicken broth, 2 tbls of tamari and 2 tbsp of flour.

Season your thighs with s&p.

Heat a large skillet with some oil…. And add the thighs, cooking for 5 mins on each side or until they are golden brown. Remove and set aside.

Now add a squirt more of the oil and drop in the mushrooms and onions. – stir them up and let them cook. After about 8 mins or so, add garlic, thyme and s&p. Cook for 5 mins.

Now combine the chicken broth and tamari in a measuring cup and pour ¾ of it in the pan with the mushrooms/onions. Scape up any bit stuck to the bottom of the pan.

Now add the flour to the remaining broth and stir to remove any lumps. Add this to the pan and allow it to thicken a bit.

Now add your chicken back to the pan, reduce the heat to simmer and cover – cook for another 10 mins.

When ready – serve this over a heaping portion of creamy mashed potatoes.

Yum, yum, yum.