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'You Better Go Out and Buy Stock Now' By Spencer Jakab

Everything on your screen is green this morning except for biotechnology and pharmaceutical stocks after President Trump's announcement that drug prices will be lowered . The U.S. and China agreed to slash recently enacted tariffs following positive trade talks in Switzerland.

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There's an old saying on Wall Street: "Those who say don't know and those who know don't say."

Let's go ahead and make an exception for President Trump . That isn't because he's the greatest stock analyst who ever lived: He has almost complete control over the thing that has been weighing on investors.

Five weeks ago we were on the cusp of a bear market. Now that tariffs on Chinese goods have been reduced sharply following "substantial progress" in weekend talks in Switzerland, the S&P 500 is set to begin trading slightly higher than on Liberation Day.

This was a short-term buying opportunity, but don't expect Wall Street analysts, strategists and economists to say "never mind" and go back to their pre-trade war forecasts. Sure, these are the people who say but don't know, but they can tell us a few useful things.

Foreigners' diminished faith in the dollar, lower earnings estimates and the highest tariffs in decades are still with us. A complete economic decoupling from China wasn't Wall Street's base-case scenario, and at least some pain is already coming the global economy's way.

Multinationals' executives are breathing sighs of relief this morning. Unfortunately, they still aren't sure where or whether to build factories or order inventory. Global investors, who have lost more than Americans in their home currencies, are spooked.

It's tempting to dismiss strategists as worrywarts, and not just because your 401(k) looks about like it did at the beginning of April: You're probably still employed, shelves are stocked and most of the economic data you've seen looks normal.

But the right way to think about your portfolio isn't to decide whether you trust the President of the United States or pointy-headed Wall Streeters. This morning's gains notwithstanding, the economy and job market rarely turn on a dime and nobody ever really knows what will happen to stocks. Instead, weigh what can go right and what can go wrong.

Strategists' forecasts for growth in earnings per share for the S&P 500 this year have been cut in half to around 4%. That reflects a slowdown, not a recession, and the odds of both have risen. Goldman Sachs says that the latter would likely mean an eventual 10% drop in earnings. Since 1950 the average S&P 500 peak-to-trough decline during a recession has been 31%.

We're now back to the 96th percentile in terms of cyclically adjusted price-to-earnings ratios for the S&P 500. That means the market has only has been more expensive 4% of the time. Given such valuations, prices have a lot more room to fall than rise, even if trade headlines remain positive.

Things look calm now. More profit warnings, supply-chain snafus or currency chaos could change that.

Stocks I'm Watching

Amazon ; Apple ; Tesla : The biggest U.S. tech stocks surged in premarket trade after the White House and China agreed to substantial tariff cuts . Among them, Amazon sells many Chinese-made products on its platform; Apple does much of its assembly in China; and the country is an important market for Tesla.

A.P. Moeller-Maersk ; Hapag-Lloyd : News of lower trade barriers between the world's two biggest economies lifted shares of global shipping companies. Maersk and Hapag-Lloyd shares both rose more than 10% in Europe.

Glencore : Lower tariffs and a rosier U.S.-China trade outlooked helped global mining stocks. Glencore shares rose more than 5% in London.

Kering ; LVMH ; Stellantis ; BMW : European luxury stocks and carmakers also gained.

Pfizer : The pharmaceuticals sector bucked the bullish trend after President Trump said he would sign an executive order aimed at reducing drug prices . Pfizer shares fell premarket.

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On this day in 1986, with Wall Street going ga-ga over media and retail stocks, Home Shopping Network went public, selling 2 million shares at $18. The stock closed at $47.75, up 165%, probably the highest first-day return yet on record. (A decade later, the Internet would change all that).

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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May 12, 2025 06:33 ET (10:33 GMT)

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