Executive summary:
- The U.S. could impose tariffs on China, Mexico, and Canada starting next month
- The Fed is widely expected to hold rates steady at its upcoming meeting
- Big Tech earnings season, which kicks off next week, will be a key focus for markets
On the latest edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed the headlines from U.S. President Donald Trump’s first days back in the White House. He also shared some of the main investor watchpoints for the week ahead, including corporate earnings and the U.S. monetary policy outlook.
Tariffs a big focus of new U.S. administration
The big story of the week for markets was the beginning of the second Trump administration, Cousley said, noting that Donald Trump was sworn in as the 47th president of the United States on Jan. 20. He reminded viewers that the Russell Investments strategist team sees four main watchpoints for investors during Trump’s second term: tariffs, deregulation, taxes, and immigration.
During its first few days, the Trump administration announced details on immigration policies and a few changes on the deregulation front, but hasn’t provided much detail on potential changes to tax laws yet, Cousley remarked. He said the main focus so far has been centered around trade and tariffs, with the new administration directing federal agencies to review China’s trade practices.
President Trump also announced that the U.S. might impose a 10% tariff on Chinese imports as soon as Feb. 1, Cousley noted. “A 10% tariff rate on goods from China is probably a bit lower than what markets have been worrying about,” he said. The president also said that the U.S. might impose a 25% tariff on imports from Canada and Mexico at the beginning of next month, Cousley added. “By contrast, that rate is a bit higher than markets have been anticipating,” he remarked.
Cousley noted that so far, there hasn’t been much of a response from Chinese policymakers about potential U.S. tariffs. However, a government official did recently remark that perhaps China needs to start importing more, Cousley said. “Going back to the big picture, China has a very low consumption rate as a percentage of GDP (gross domestic product) when compared to most developed markets. China does need to increase its consumption rate—and these remarks were in line with this thinking,” Cousley stated.
He closed by noting that overall, there are some early signs China might be attempting to strike a little more of a conciliatory tone with the second Trump administration than with the first one, but that an escalating trade war between the U.S. and China remains a very big risk that will have to be carefully monitored.
Fed expected to skip rate cut at first meeting of 2025
Cousley characterized the upcoming final week of January as a very important one for markets for two main reasons: the U.S. Federal Reserve (Fed) meeting on Jan. 28-29 and earnings reports from big tech names.
After cutting interest rates by 100 basis points (bps) in the final months of 2024, the U.S. central bank is widely expected to forgo another rate cut, leaving the overnight rate unchanged at 4.25%-4.5%, Cousley said. Of much greater interest to markets will be the Fed’s outlook for rates in the months ahead, he said, noting that the strategist team expects two cuts in 2025.
Several big tech companies are also due to report fourth-quarter earnings the week of Jan. 27, including Apple, Microsoft, and Meta, Cousley said. He noted that artificial intelligence (AI) continues to be a big theme these days, with the Trump administration recently announcing a significant AI funding project. Amid this backdrop, markets are likely to focus on the capital expenditure plans from big tech companies in addition to their quarterly earnings, Cousley concluded.