Geopolitical Tensions and U.S. Energy Markets: A Schwab Strategist's View

Policy Uncertainty and Market Impact

• ⚠️ Kevin Gordon characterizes policy uncertainty, particularly around tariffs, as instability rather than mere uncertainty.
• 📈 The path of least resistance for tariff rates has been higher, but the market focus has been on the potential for lower rates, driving the S&P 500 near record highs.
• 📉 The market will need to digest higher effective tariff rates and their potential impact on the economy, especially the labor market.

Economic Indicators to Watch

• 📊 The key metric for the latter half of the year will be the line between softening and quick weakening in the labor market, with the unemployment rate already rising.
• 📦 Factors like the ultimate tariff rates with major partners, consumer credit, and pre-tariff inventory build-ups are crucial unknowns.
• 🎢 The export-import differential and inventory data will significantly drive GDP volatility this year, with potential swings in 2025.

Corporate Earnings and Tariffs

• 📊 Investors should look beyond headline earnings and guidance, focusing on how companies are stomaching volatility and adapting to tariffs.
• 🛍️ Companies in sectors like consumer discretionary and staples have shown varied reactions, with some passing costs to consumers and others absorbing them into margins.
• 💰 CEOs are indicating that even with increased costs from tariffs, they are not always passing these onto end users.

Geopolitical Risk and Energy Markets

• 🌍 Geopolitical tensions and global conflicts are a new normal, with significant implications for U.S. growth and markets.
• 🛢️ The energy channels are critical, with events like potential Strait of Hormuz blockages impacting global oil prices.
• 📉 While geopolitical tensions can hit markets, the U.S. economy may see less of a pass-through effect due to reduced energy spending as a percentage of overall consumer spending and its status as a net oil exporter.