Here we go again. Over the weekend, new tariff threats began flying in all directions. As in new 30% tariffs for Mexico, Canada, and the EU. And just before that there were the "letters" that went out to various countries informing them of the "take it or leave it" tariff terms. If one didn't know better, these could be considered worrying developments for the markets.

However, markets don't seem to care much - well, at least for now. The S&P 500 is trading within half a percent(ish) of last week's all-time high. Bond yields are sitting in the middle(ish) of their recent trading range. So, while tariff tape bombs regularly sent markets into a tizzy a few months back, now they are being greeted with a yawn.

The Question Is, Why?

The question of the day on this fine summer Monday is why markets are so sanguine as the administration continues to threaten countries with more tariffs?

I've got a couple theories on the subject, so here goes.

First, one of Wall Street's oldest cliches would appear to apply here: "The market never discounts the same news twice." Or my take on the theme is stocks don't go down for the same reason over and over again.

As I've opined a time or twenty over the years, I believe markets can "handle" just about anything - given enough time and information. And since tariff threats have become old hat, it looks like traders aren't going to freak out until/unless there is actually something to freak out about.

Such an attitude falls into either the "don't get fooled again" or the more recent, "T.A.C.O." category. The idea, of course, is traders have learned that threats of 30%, 50%, or 100%+ tariffs are just that. Threats. They have not (yet?) come to fruition. No, instead, the threats are viewed as simply tools of negotiation. So, until/unless the tariffs are actually put in place, why worry?

Another Take

Another take on the subject is that traders are starting to understand the revenues that are being produced by the tariffs currently in place. For example, in the last week, we learned that the U.S. collected $24 billion in tariff revenue in the month of May. And Secretary of State Bessent informed us that the country has collected something on the order of $100 billion year-to-date.

Based on the data available, one report I saw projected that the U.S. will take in $200 billion in tariffs this year. And Bessent's estimate is, not surprisingly, meaningfully higher - the Secretary projects the U.S. could bring in as much as $300 billion in 2025.

Looking farther out, the report from Yale Budget Lab suggests the U.S. could raise a cool $2.6 trillion in tariffs over the next decade. But, the report suggests, when you subtract out the offsetting economic losses that are likely to occur on account of the tariffs, the number drops to $2.2 trillion.

Then when you mix in the purported $1 trillion (a nice, round, number, eh?) in savings from DOGE cuts and an economy that is currently growing well above trend (2.5% versus the 1.8% rate assumed by the government), one can argue that the country's financial picture just might have some upside.

Looking Ahead

Yet another view is that investors are looking ahead to better days. After all, the macro backdrop is pretty solid right now. The economy is doing just fine, thank you - as last week's jobs data confirmed. Inflation is trending lower - granted not at the pace the Fed would like - but the key is inflation is looking fairly stable here. Earnings are at record levels and projected to grow at a double-digit clip through 2026. And the AI secular growth theme is giving investors of all shapes and sizes reasons to be optimistic about big stock market winners in the years ahead.

Dark Clouds Clearing?

From my seat, the big takeaway is that uncertainty (which markets hate with a passion) is turning to clarity. Don't get me wrong. Nobody knows exactly what is going to happen on the tariff, economic, or inflation fronts. However, the market was clearly assuming the worst during the mid-January through early April swoon. Back then, the game was to sell first and ask questions later.

Well, now that we are getting some answers to at least some of those questions, there is less uncertainty. Tariff fears are turning to the realization that threats are a means to negotiated deals, which, in turn, are designed to increase revenues to the government coffers.

In addition, the passage of the BBB (Big, Beautiful Bill) clearly removes a fair amount of fiscal uncertainty. You may not like/agree with the bill's contents, but at least you know what the deal is going forward.

And finally, there is the geopolitical situation. While there were real concerns about something along the lines of WWIII developing earlier in the year, markets now have a bit more clarity on what to expect.

To be sure, there is nothing good about the wars in Ukraine and the Middle East. Or the potential for escalation. But as of this moment, something big that could impact the U.S. economy and/or corporate earnings does not appear to be happening.

In closing, my view is that investors are putting away their fears and looking on the bright side. And if there is one thing I've learned during my career in managing markets it is that markets are never wrong. As such, despite the fact that the dog days of summer are just around the corner - a period that can get a little sloppy - it is best to remain seated on the bull train and enjoy the ride. Well, for now anyway.

Thought for the Day:

If you can be a better you every day, you can win the race. - Brian Wong

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor

Disclosures

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: None - Note that positions may change at any time.

NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES