ZXLU - BMO SPDR Utilities Select Sector Index ETF

Among the myriad of events that have come up over the past few weeks, the most relevant one for U.S. sector investors might just be the end of the de minimis tariff exception. Indeed, as of August 29, the U.S. has started levying tariffs on imports that are less than US$800 at the designated rate under IEEPA1 (depending on the product’s country of origin).

At the time we’re writing this, just over 70% of firms in the S&P 500 have reported earnings for the second quarter. Of those, close to 80% of them have beaten earnings-per-share (EPS) expectations – which is slightly above the five-year average of 78%.

Over the past few months, we’ve shifted from a defensive posture to a more neutral one. That reflects our view that the risks to U.S. large caps feel a bit more balanced than they have in previous months.

In our minds, the single most important macro development over the past month has been the Trump administration’s attempt to de-escalate the trade war. Of course, that has been reflected in markets – with the S&P 500 rallying off of its April 7 lows. Indeed, markets have taken their cue from talks between the U.S. and other countries, which have resulted in agreements (most notably with China). Even if such arrangements are temporary, the implicit message is that the U.S. is intent on trimming the extremes of its trade policy – only a few months since it began tariffing other countries’ goods imports.

So here we are. Just a few short months after his inauguration, U.S. President Donald Trump has fired the opening salvo of a global trade war.

While precise estimates on the new U.S. average effective tariff rate vary, there is broad consensus that it is well north of 20%. That is a stark difference from where it was a few months back (around 2-3%), and it signals a return for the U.S. to restrictive trade policies not seen since the days of the Great Depression just under a century ago.