From Tariff Shocks to M&A Waves: A Weekly Market Summary

This week's market was significantly shaken, with the S&P 500 and NASDAQ falling by approximately 2% triggered by the Trump administration's move to impose tariffs. The backdrop is the conflict between the underlying strength of the U.S. economy and the risks posed by trade friction. Furthermore, multiple "shock factors" hit simultaneously, including the Fed's decision to hold off on interest rate cuts, disappointing employment data, pressure on the pharmaceutical industry, and the announcement of large-scale M&A deals. This article organizes these by theme and summarizes their implications for the market.

1. Tariff Agreement Turmoil

1-1. Negotiation Results with the EU

• Agreement Details: An agreement was reached to impose a 15% tariff on goods exported from the EU to the U.S., while reducing tariffs on most U.S. products to zero.

• Analysis: Some have evaluated this as "Europe having almost surrendered," and there are concerns about the impact on the German economy, which is highly dependent on exports.

1-2. Spillover to China, India, and Others

• China Negotiation Deadline: An agreement is sought by August 12. Depending on progress, further tariff impositions are expected.

• India Sanctions: An additional 25% tariff was imposed starting August 1. President Trump criticized India in a Twitter-style post, stating, "India is one of the countries with the world's highest tariffs and harshest non-tariff barriers."

• Other Target Countries: Large-scale additional tariffs will be imposed on countries without agreements, such as Cambodia (19%), Taiwan (20%), and Switzerland (39%), with implementation scheduled for August 7.

2. Monetary Policy and Employment Statistics

2-1. Fed's Decision to Hold Off on Rate Cuts

• At last week's FOMC, additional rate cuts were put on hold, with two board members supporting a cut but being overruled by the majority.

• The Trump administration is demanding an "immediate rate cut," and political pressure is intensifying.

2-2. Non-Farm Payrolls Falling Short

• July's non-farm payrolls came in at 73,000, significantly below market expectations (104,000), and the June figure was also revised sharply downward from 147,000 to 14,000.

• As a result, the 10-year U.S. Treasury yield fell to 4.23%, reigniting the debate over whether to continue the normalization of monetary policy or pivot to early easing.

3. M&A and Industry Consolidation

3-1. Integration of the Railway Industry

• Union Pacific x North Fork Southern: Industry concentration has risen significantly due to the merger of these two companies. It is said that this would have been difficult to achieve under the Biden administration due to strict regulatory scrutiny, and speculation is circulating that this is a "tacit approval by the Trump administration."

3-2. Massive Acquisition in the Cybersecurity Sector

• Palo Alto Networks' acquisition of CyberArk: Approximately $25 billion in scale. Against the backdrop of rising security demand, large-scale M&A is expected to continue in a chain reaction, with spillover effects anticipated for advisory firms.

4. Economic Indicators and Sector Trends

4-1. Rebound in Quarterly GDP

• U.S. real GDP showed strong growth at an annualized rate of 3% in the second quarter, once again demonstrating the soundness of its fundamental strength.

4-2. Price Reduction Pressure on Pharmaceutical Companies

• President Trump sent a letter to the CEOs of major pharmaceutical companies demanding they 'provide new drug prices to government program enrollees at the most-favored-nation price' and 'not set overseas discount prices worse than those in the U.S.' The deadline for a response is September 29.

5. Summary of Major Stock Earnings

5-1. Novo Nordisk

• Due to sluggish sales of the weight-loss drug 'WGOI,' the company lowered its full-year guidance for the second time, causing the stock price to plummet by over 20%.

5-2. UnitedHealth

• Due to an increase in insurance contract loss ratios and reports of investigations into Medicare/Medicaid claims, the company significantly lowered its 2024 guidance to $16.

5-3. PayPal

• The payment volume growth rate slowed from 6% to 5% year-over-year. Investors interpreted this as a 'signal of market share loss,' and the stock price fell by 9%.

5-4. Boeing

• Cash burn in the second quarter almost stopped. Revenue exceeded expectations at $22.75 billion, a 35% increase year-over-year.

5-5. Starbucks

• Same-store sales were down 2% year-over-year, and EPS was $0.50 (expected $0.65), which was lackluster. It appears it will take time for the new CEO to turn things around.

5-6. Visa / Microsoft / Meta / Comcast / S&P / Amazon / Apple

• Visa: Showed stability with an 8% increase in payment volume.

• Microsoft: Revenue increased by 18% due to strong Azure performance, EPS improved by 17% from the previous year, and the stock price rose 4% in after-hours trading.

• Meta: Ad revenue up 22%, shares surged 11% as the market welcomed the impact of AI investments.

• Comcast: Broadband net loss of 226,000, but shares rebounded slightly as results exceeded expectations.

• S&P: EPS up 10%, trading near all-time highs due to earnings and guidance upgrades.

• Amazon: Shares fell in after-hours trading due to an AWS miss.

• Apple: iPhone sales were strong, up 13%, but the stock dipped slightly on tariff news.

6. Investor Questions (Mailbag)

6-1. Portfolio Management Strategy

• Question: "Should position sizing be done in a lump sum or incrementally? When should I rebalance, and when should I sell?"

• Answer (Mr. Eisman): For long-term investing, a lump sum is fine. Selling should be limited to when the 'investment thesis breaks,' and one should not be overly fixated on valuation, leaving that judgment to the market.

Conclusion

This week's 'tariff risks,' 'monetary policy,' 'major corporate earnings,' and 'M&A trends' were all factors that highlighted both the 'strength' and 'uncertainty' of the U.S. economy. Investors are required to take a bird's-eye view of these multiple factors, constantly check whether their medium- to long-term investment thesis remains intact, and maintain a perspective that views temporary market adjustments as opportunities.

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