BMO's Carol Schleif on Choppy Markets, Tariffs, and Economic Clarity

Market Volatility and August Trading

• 💡 August trading can be volatile due to light volume, with many participants on vacation and Congress out.
• 📌 This environment makes markets more headline-driven, requiring careful analysis of various economic indicators.

Market Reaction to Tariffs

• 🎯 The market has been surprisingly accepting of tariffs, partly because they brought clarity for businesses.
• 📈 Businesses have proven more resilient than anticipated, despite the ongoing impact of tariffs and policies.
• ⚠️ While services numbers have shown hiccups, the market is currently leaning into the clarity provided by known tariff amounts and perceived good deals.

Impact of Tariffs on Prices and Margins

• 💰 CEOs anticipate price increases in the fall as companies can no longer absorb rising costs.
• 🧩 Companies face a choice: eat the cost in margins or pass it on to consumers.
• ⚠️ Tech companies like Nvidia may be able to pass on costs, while consumer goods companies face substitution from consumers.
• 🚗 For industries like automotive, companies like Ford are experiencing significant cost increases that cannot be indefinitely absorbed.

Economic Outlook Post-Labor Day

• 📊 Billions collected from tariffs are ultimately coming from US companies or consumers.
• 📉 This suggests a potential slowing of the growth rate as the true economic impact filters through.
• 🗓️ The real economic impact will become clearer in the third and fourth quarters, after second-quarter numbers which had an easy bar to clear.

Navigating Choppy Sailing

• ⛵ The outlook for the market is choppy sailing heading into year-end.
• 🔍 Investors will selectively focus on data that supports their bullish or bearish market views.
• 📈 More legitimate data will emerge in September and into the third quarter, providing a clearer picture of the economic landscape.