Can Stocks Rally in the Face of Tariff Threats?
At the start, and the end, of last week, tariff headlines pressured stocks and turned what would have been a solid weekly gain into a modest loss, which begs this question: Can stocks rally if we keep getting these tariff threats and headlines? The answer, I believe, is “yes,” but it’s going to require nearly universally positive news from the remaining bullish factors in this market.
The bullish factors that have pushed this market higher include stable economic growth (soft landing), dovish Fed (ongoing rate cuts), AI enthusiasm (bigtech earnings growth/leadership) and hope of tax cuts. As long as all of them remain a consistent flow of positive headlines, then markets can overcome tariff headlines and volatility to continue to rally.
Practically, that means continued Goldilocks data (which we got last week), the Fed pushing back on a pause narrative (which we hopefully get this week via Powell and CPI), solid tech earnings (this was more mixed but not bad) and progress on Republicans extending tax cuts and promoting a pro-growth agenda. As long as all those factors produce a steady stream of positive headlines, then all the tariff noise and volatility can be overcome and this market can grind higher.
However, if we do not get that consistent flow of positive headlines, then we’re looking at a choppy, sideways market—and that’s basically what we got last week and what we’ve had for most of 2025.
Last week, economic data and the Fed were positive. But tech earnings were mixed and Republicans are fighting about how to extend the tax cuts. So, the net result, given tariff headlines, was a mixed market that couldn’t stand up to the tariff volatility. Now, if we start to get negative news on these factors supporting the market (so growth slows materially or the Fed pushes back on rate cuts), we get more negative AI news (DeepSeek) and Republicans fail to make progress, then any tariff headlines will add to these negatives and cause a real pullback in stocks.
Here’s what it means to us: The most likely path for this market in the near term is a more volatile chop sideways. I say that because it’s unlikely that we get consistently positive or negative news flow from these four factors (growth, Fed rate cuts, AI enthusiasm and policy). Instead, it’s likely to be a continued mix of news, and that means that as long as tariff headlines are flying (and that’s for the foreseeable future), we should expect a choppy, volatile market, but not one that meaningfully declines or rallies unless we get consistently positive (or negative) news flow.
From a positioning standpoint, I still advocate maintaining positions (so not lightening up on equity exposure). So by maintaining the large cap growth and value we have the position for the upside when it occurs. I do not see the potential to the downside being severe and so do not see the need for diversifying in positions that have a limited upside. This is still a secular bull market and demands patience and resistance to react to negative news.
"This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses. Past performance is not a guarantee of future results. Investors should always consult their financial advisor before acting on any information contained in this newsletter. The information provided is for illustrative purposes only. The opinions expressed are those of the author(s) and not necessarily those of Geneos Wealth Management, Inc.