Deep Dive
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Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Thursday, May 29th, and I'm your host, Kim Kahn. Our top story so far.
You heard on Wall Street Breakfast this morning about the trade court ruling against the White House's April tariffs imposed using the International Emergency Economic Powers Act of 1977. But Goldman Sachs Chief U.S. Political Economist Alex Phillips says there are four ways for the administration to impose similar tariffs, regardless of how an appeal turns out.
Number one, the administration could quickly replace the 10% across-the-board tariff with a similar tariff of up to 15% under Section 122. Those tariffs would last for only up to 150 days, after which the law requires congressional action to extend. The law is not clear on whether those tariffs can stop and restart, Phillips says, but it authorizes the president to address a balance of payments deficit or to prevent an imminent and significant depreciation in the dollar.
but it does not require any formal investigation or process, so the administration could theoretically replace the current 10% tariff with a Section 122-based tariff within days if deemed necessary.
Number two, the U.S. Trade Representative could quickly launch Section 301 investigations on key trading partners for unfair trading practices, laying the procedural groundwork for tariffs after the investigation is complete. There was no level on duration of the tariffs, but investigations would likely take several weeks, he said. Number three, Section 232 tariffs based on national security grounds, which President Trump has already used for steel, aluminum, and autos, could be broadened to cover other sectors.
We already expect additional sectoral tariffs, pharmaceuticals, semiconductors and electronics, etc., and uncertainty regarding the IEEPA-based tariffs could lead the White House to put more emphasis on sectoral tariffs where there's much less legal uncertainty. And number four, Section 338 of the Trade Act of 1930 allows the president to impose tariffs of up to 50% on imports from countries that discriminate against the U.S.,
This authority, which has never been used, is similar to the authority under Section 301, except that it limits the amount of the terrorists, but does not require a formal investigation.
The likelihood is that the White House uses Section 122 to impose similar across-the-board tariffs and then uses Section 301 for investigations into larger trading partners, Phillips said. On the economic front today, the second estimate of U.S. Q1 GDP was revised to a slightly smaller contraction at an annual rate of negative 0.2% versus the advanced estimate of negative 0.3% and the negative 0.3% consensus.
The revision reflects an upwards revision to investment that was partly offset by a downward revision to consumer spending. As in the initial Q1 GDP estimate, the decline is attributed from a surge in imports during the quarter. The core PCE price index was revised slightly lower to 3.4% from its initial estimate of 3.5%, but still represents a hefty rise from the 2.6% in Q4.
Paul Stanley, not the Kiss lead singer, but chief investment officer of Granite Bay Wealth Management, says the GDP figures indicate that the economy is resilient and has been able to largely withstand the tariff situation.
While today's numbers are subject to one more revision, we may very well avoid a recession, although much of that will depend on the outcome of trade negotiations over the coming months, he said. We expect the Fed to revisit its potential rate cut decisions in the fall, as it will want to wait and see the outcome of trade negotiations taking place over the coming months, he added. It's possible that the Fed cuts rates by one to two times in the next few final months of 2025.
Among active stocks, HP is tumbling after the PC and printer maker reported fiscal second quarter results and guidance that missed expectations by a wide margin. For the third quarter, HP expects EPS, excluding one-time items, to be between 68 and 80 cents, well below the 97 analysts were expecting. For the full year, HP expects EPS between 3 and 330 on an adjusted basis, well shy of the 356 estimate.
TD Cohen cut its rating on Starbucks to hold from buy as it lowered profit expectations. Analyst Andrew Charles says Starbucks will settle into a 2026-2028 EPS base that is below a consensus expectation, which does not appear to be considering labor investments central to the turnaround. The firm also sees a risk that a return to normalized same-store sales growth is delayed by deteriorating value perceptions, historical underperformance in recessions, and increased competition.
and Sentinel-1 is sliding after it reported mixed first quarter results and guidance, prompting Bank of America to downgrade the cybersecurity stock to neutral from buy. Analyst Tal Liani said, "...the focal point of the last two quarters has been weaker guidance, with growth of 21% down 500 basis points off the street's initial full-year 2026 expectations."
At the time, we interpreted this as a resetting of expectations by the new CFO. However, the company lowered its full-year 2026 revenue growth guidance again this quarter from 23% previously to 22%, attributed to macro uncertainty and deal fluctuations.
And in the Wall Street Research Corner, the return of bond vigilantes could mean it's time to buy the long bond. B of A strategist Michael Hartnett says the rolling 10-year return from treasuries is in the same negative, humiliating place that stock returns were in February 2009 and commodities were in June 2018. There's now nothing more contrarian in 25 than being long the long end, he said.
The 2020s bond bear market is perfectly sensible given the all-hat-no-cattle path of U.S. tariff policy, the Doge is out tax cuts are in Q2 pivot, and investors' needs to hedge risk bubble and boom policies pursued as the politically easiest way to reduce debt as a percentage of GDP, Hartnett said. But with bond vigilantes pushing down Treasury prices, there's now a great entry point to buy the 30-year, he said.
The magic treasury yield number is the five-year at 3%, above which the $1.2 trillion in interest payments on U.S. debt grow, below which they stabilize, Hartman added. That's all for today's Wall Street Lunch. Look for links for stories in the show notes section. Don't forget, these episodes will be up with transcriptions at SeekingAlpha.com slash WSB. And make sure you're getting the most out of your portfolio with quant, news, and analysis by heading to SeekingAlpha.com slash subscriptions.