With the S&P dipping less than 0.02% and Nasdaq in the green, Wall Street is instead focused on Q2 earnings, Fed minutes, and global deflation.
Michael M. Santiago/Getty Images
President Donald Trump’s recent volley of tariff threat letters to 14 countries came with the kind of headline-grabbing drama that investors have largely learned to take with a grain of salt. Despite the letters, the administration’s warnings of sweeping reciprocal tariffs that will hit everything from copper to pharmaceuticals and of the once looming July 9 trade deal deadline the president has pushed to August 1, Wall Street has barely flinched.
On Wednesday morning, S&P futures nudged higher by about 0.2%, while Tuesday’s trading painted a picture of cautious optimism. Money-center banks lagged amid early earnings previews, yet small-cap stocks, unprofitable tech, and value shares found traction. The broader market appeared to be less focused on trade headlines and more focused on fundamentals.
This calm isn’t by accident. Investors have grown accustomed to Trump’s tariff theatrics playing out as leverage rather than immediate action. The sudden deadline shift after only two partial trade deals materialized (with the U.K. and Vietnam) reinforced the sense that this latest move is a bargaining chip in a continuing negotiation rather than a flashpoint. Traders even have a nickname for it: the “TACO” strategy — or, “Trump Always Chickens Out.”
A UBS report from Tuesday said that, while these letters have gotten plenty of attention, they don’t represent a significant escalation in the trade war. UBS analysts suggested that the Trump administration's approach is more about getting leverage in negotiations than implementing immediate, sweeping tariffs and said that the extended deadline for negotiations seems to indicate a willingness by Washington to engage in further talks, rather than an immediate move toward full-scale trade conflict.
That said, the tariff threats do carry teeth. After Trump said during a White House cabinet meeting that a 50% tariff on copper is coming (matching levies on aluminum and steel), copper prices surged over 13%. The president also signaled that tariffs on semiconductors are coming and said that pharmaceutical companies face potential duty hikes as high as 200%. Yet, equities barely reacted, reflecting confidence that the market can absorb these shocks or that enforcement won’t be immediate.
Wall Street’s attention is largely on earnings and central bank signals. The second-quarter earnings season is kicking off in earnest, with bank results in the spotlight. Strong corporate profits have buffered markets through trade uncertainty so far. At the same time, investors await June’s Federal Reserve minutes (coming Wednesday) for clues on monetary policy’s next moves, especially as Chair Jerome Powell remains cautious and some Fed officials hint at a dovish tilt amid tariff concerns.
Global economic data adds another layer. China’s producer prices plunged 3.6% in June — the steepest drop in nearly two years — highlighting deflationary pressures that could dampen global growth and demand. That trend complicates the narrative of tariffs causing inflation, suggesting markets may have less reason to panic over trade tensions.
Amid it all, corporate America marches on. Apple $AAPL shuffled its executive suite; Merck $MRK confirmed a $10 billion deal for Verona Pharma; AES flagged infrastructure suitors; Meta $META deepened investment in EssilorLuxottica. Even as headlines clang with tariff tension, boardrooms continue their deal-making.
Still, complacency carries risks. UBS models show that markets have priced in exactly zero tariff impact — despite U.S. duty levels reaching multigenerational highs. Barron’s has warned that aggressive trade barriers could shave 0.7 percentage point off GDP. Goldman Sachs $GS and Bank of America $BAC have raised their S&P targets but acknowledge that unless tariffs aren’t delayed or watered down, markets could be caught flat-footed. Analysts warn that if August 1 arrives with enforcement rather than delay, the market could swiftly reassess its optimism.
For now, Trump’s tariff letters look like headline fodder rather than market movers. Investors have chosen to look beyond the noise, betting on corporate earnings and Fed guidance to chart the next course. But with the August deadline looming, the calm could prove temporary when the next test arrives: Will these letters turn into tariffs or just stay part of the performance? Wall Street is watching closely, ready to act if the show turns into reality.
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