Tariff Tango: Enjoy the Music but Know When to Leave
Plenty of room at the Hotel California, Any time of year, You can find it here -Eagles
The party vibes are back like we are all at the Hotel California. Bitcoin just kissed $123K. Tech is sizzling on the dance floor from generative ai spending. Meme names are running again with Krispy Kreme surging 27% in one day. It’s GameStop season without the Reddit thread.
And the S&P? New highs. Low volatility. Everyone’s a genius. But under the surface, it’s all air and caffeine. The Eagles’ famous song “Hotel California” paints a picture of the dark side of the American Dream. The hotel is a metaphor for excess, illusion, and entrapment- a place that lures you in with comfort and glamour but won’t let you leave. A fitting backdrop for today’s market mood.
The index is trading at 22.2x forward earnings. That’s well above the 5-year average and creeping toward dot-com territory. Earnings are still decent. Eighty percent of S&P 500 companies beat estimates. But how long can they float if the inputs start to sour?
The Eye of the Storm
Back in January, most major importers quietly front-loaded inventory ahead of Trump’s tariff threats. Think sneakers, smartphones, appliances. They crammed warehouses while shipping costs were still manageable. That helped Q1 and Q2 sales look solid. Visa’s CFO said it flat-out: consumers moved up big purchases out of fear.
That kind of behavior creates a sugar high. But it doesn’t last.
As we head into Q4 2025, the music could slow. Inventory is full. Demand may already be fading. Add a cooling job market and sticky inflation, and you’ve got a strange brew: falling demand plus rising costs.
This isn’t just theory. Puma recently warned of losses due to overstock and tariff-related markdowns. Other global names will follow. If retailers have to keep discounting while tariffs climb, something’s got to give.
The Next Shoe to Drop From the Tariff Tango
Relax said the night man, we are programmed to receive. You can check out any time you like, but you can never leave. – The Eagles
Europe’s already shaky. China’s still digesting a real estate crisis. And yet U.S. stocks are priced for perfection.
It’s classic late-cycle behavior. Everyone sees the risk, but nobody wants to leave the party first.
Here’s the kicker: tariffs may seem like a quick fix to raise revenue, but they’ll seep into consumer prices. Retailers are playing defense, absorbing small increases to keep customers happy. But make no mistake — imports are about to get more expensive.
And Trump? Don’t expect him to disappear to the golf course anytime soon. The trade-war can is still getting kicked down the road, but eventually, we’ll hit a wall when he draws a line in the sand.
He floated a 15% blanket tariff on all imports and just sealed a deal with Europe — up from the 1.5% range we’ve seen over the past decade. This rate will apply to goods like cars, car parts, pharmaceuticals, and semiconductors. Some categories like steel, aluminum, and copper face even higher rates (up to 50%).
That decimal shift matters. The 15% rate is the highest general tariff applied to EU goods by the U.S. since the 1930s. It’s expected to significantly raise trade costs and hurt competitiveness for both European exporters and U.S. consumers. China’s deal may be even steeper.
This isn’t some fringe scenario. Multiple policy shops put the odds of full implementation at 50% or higher.
Expect:
- Higher consumer prices
- Margin compression for multinationals
- Retaliation from China and the EU
- A delayed but real hit to global demand
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✔ The takeaway this week: Don’t try to time the market. Stay invested, stay diversified, and don’t bet the house on any one stock, meme, or coin. Review your currency exposure. Keep some powder dry. Own real assets. And listen closely to earnings calls — that’s where the cracks show up first. Most important, don’t panic and run to cash. But don’t sleepwalk through risk either. This market has rewarded discipline and punished concentration. You don’t need to swing big. You just need to play smart.
Jon here. We’re still in our 2025 stagflation-mode 60/40 portfolio: large-cap blue chip dividend stocks, a moderate serving of international, short-duration fixed income with TIPS, real assets, infrastructure, financials, and selective tech. That mix is up around 6 to 7% year to date, with minimal damage during April’s flash crash.
For our UHNW clients, we lean on a more sophisticated 30/30/30 framework — bonds, equities, and a third bucket of market-resistant structured notes and private alternatives, including private equity and credit.
It’s how we stay in the game without riding the roller coaster. No one has a working crystal ball, but balance and discipline still go a long way.
So Why Are Markets Shrugging?
Because nothing’s breaking — yet. The narrative is still “soft landing,” AI-fueled growth, and the Fed cutting rates. It feels like many investors are asking, “what could go wrong?” Are they like Cinderella at the ball? While we may not get a full replay of the 1999 dot-com bust, this isn’t a fairy tale either. Keep your eyes open.
The Warning Signs
You don’t need a crystal ball to see the cracks:
- Valuations are stretched — S&P 500 trades at ~21x forward earnings, near dot-com levels
- Credit spreads are tight — not pricing in any slowdown
- Volatility is cheap — VIX near historic lows
- Positioning is crowded — everyone is long, few are hedged
What Smart Investors Should Do Now
You don’t need to panic. But you do need to prepare. Here’s how:
- Rebalance if your equity allocation has drifted too high
- Raise some cash — dry powder buys opportunity when volatility spikes
- Diversify internationally, but watch exposure to Europe and China
- Own real assets (commodities, gold, infrastructure) that could hold value in a trade war scenario
- Review currency risk — a strong dollar could become a headwind
Tariffs don’t hit every sector the same. Some bleed. Some bank. Earnings season tells the real story as we will cover this and a bit more in our weekly charts below.
Corporate earnings are beating expectations so far
Looking under the hood on how well corporate America is holding up, our first chart of the week below shows just how uneven earnings expectations are across sectors. Trade policy is a big reason why. It could take a few quarters before we see the full ripple effect from tariffs, especially with new deals being cut in real time.
Some of the early threats have softened. Several countries secured updated trade terms with lower tariff rates than what was first floated on April 2. The EU and Japan will now face 15% tariffs on U.S. exports. Indonesia and the Philippines are looking at 19%. Talks with China are still in play. Bottom line: Trade policy is still shifting. Earnings volatility is likely to follow.
Markets continue to reach new all-time highs
Markets keep breaking records. The S&P 500 has logged over a dozen new highs this year, most of them in just the past few weeks. (see chart) The Nasdaq is back above its December peak. The Dow is close behind. Yes, this makes some investors uneasy, but record highs are normal during economic expansions.
At the same time, tariff risks still hang over the economy. The Fed sees slightly hotter inflation and softer growth ahead. Companies that rely on imports could see margins squeezed. But that’s only part of the picture. Domestic investment is picking up, and many firms are getting leaner and more efficient. Tariffs may be high, but what matters more is predictability. Businesses can adapt if the rules don’t keep changing.
Right now, Wall Street expects S&P 500 earnings to grow about 9.5% a year. That forecast includes an uptick in global trade stability over the next two years—but it’s still early, and the road ahead isn’t set.
Earnings are an important long-term driver of returns
Over time, stock prices follow earnings. The two don’t move in lockstep, but the connection is clear. When the economy grows, earnings rise, and that tends to push markets higher. That’s why tariffs matter. They hit profits, and profits drive the market.
Valuations aren’t just about price. They’re about performance. The S&P 500 trades at 22.2 times forward earnings, well above the 15.8 historical average and not far from the dot-com peak of 24.5. If earnings keep growing, that valuation gets easier to justify. If not, the market gets expensive in a hurry.
Bottom line: Earnings drive markets, but Trump’s Tariff Tango is starting to change the rhythm. With valuations stretched and inventories full, this quarter’s results offer more than just numbers. They’re a preview of how long the music might keep playing before the lights come on.
We’re not calling for a crash. But we’re not ignoring the exits either. Focus on fundamentals. Stay nimble. And remember, when profits stall, even the best party ends fast.
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an SEC Registered Investment Advisor based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
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