Tariffs, Tensions, and Turbulence

Ray Marce

Welcome back to Equity Research, everyone. I'm Ray Marce, and as always, I'm joined by Mark Dalli. Mark, how are you holding up after this week? It's been, well, a bit of a whirlwind, hasn't it?

Mark Dalli

Yeah, Ray, it's been a proper rollercoaster. I mean, between the markets and the politics, I barely had time to finish my coffee this morning. But let's dive in—this "One Big Beautiful Bill Act," or OBBBA, is all anyone's talking about. You want to kick us off with the basics?

Ray Marce

Sure. So, the OBBBA just passed the House in May. It's a massive piece of legislation—extends the 2017 tax cuts, slashes non-military spending, and, well, makes some pretty hefty cuts to SNAP and Medicaid. There's also more money for defense, and they’re keeping that SALT deduction cap, but now it’s at forty grand. The administration says tariffs will pay for all this, right?

Mark Dalli

That's the claim. They're projecting $2.4 trillion in tariff revenue over the next decade, which, on paper, matches the $2.4 trillion the bill adds to the deficit. But, and this is a big but, independent analysts are saying the math doesn't quite add up. If you look at the dynamic effects—like, you know, how tariffs might slow growth or get offset by other factors—the net revenue could be closer to $2 trillion. And if they extend the temporary stuff in the bill, the cost could balloon to $5 trillion. That's, uh, not exactly balanced.

Ray Marce

Yeah, and I think it's easy to get lost in the numbers. I mean, $2.4 trillion, $5 trillion—after a while, it just sounds like Monopoly money. But the real question is, are these tariff projections even realistic? I mean, tariffs can raise prices, slow down trade, and, well, sometimes the revenue just doesn't show up the way politicians hope.

Mark Dalli

Exactly. And, you know, this isn't the first time we've seen this kind of debate. I remember back in 2017—well, I think it was 2017, or maybe early 2018, but anyway—when the Tax Cuts and Jobs Act came through, there was all this talk about how growth would pay for the cuts. But the deficit still went up. It's a bit of déjà vu, really. The lesson is, you can't just assume the best-case scenario will play out. There are always unintended consequences.

Ray Marce

Right, and I think investors are starting to get a bit skeptical. You see it in the way the market's reacting, but we'll get to that in a second. Anything else on the OBBBA, Mark?

Mark Dalli

Just that, you know, the distributional impact is worth noting. Lower-income households could see their after-tax incomes drop, especially with the SNAP and Medicaid changes. So, it's not just a numbers game—there are real people affected here.

Ray Marce

Yeah, and speaking of reactions, let's talk about the markets. Last week was, well, a bit of a mess. The Dow dropped 770 points on June 13th. That's, what, about 1.8% in a single day?

Mark Dalli

That's right. And the S&P was down 1.1%, Nasdaq off by 1.3%. The main driver was the Israel-Iran tensions—oil prices spiked, and suddenly everyone was running for cover. But it's not just geopolitics. Earlier in the week, we actually had some positive news—jobs data was strong, and there was a bit of optimism around U.S.-China relations. But by the end of the week, all that got overshadowed.

Ray Marce

Yeah, I mean, I was watching my portfolio on the 13th, and honestly, I had to make some quick decisions. I tend to focus on quality, but even the best companies can get caught up in a selloff like that. I ended up trimming a bit of my tech exposure—nothing drastic, but enough to sleep at night. It's one of those moments where you realize, no matter how good your thesis is, the market can just, you know, punch you in the face.

Mark Dalli

Absolutely. And it's not just the big macro stuff—company-specific news played a role too. Oracle had a great earnings report, Boeing took a hit after that India crash. But the big story was definitely the geopolitical risk. When oil jumps and headlines get scary, people start selling first and asking questions later.

Ray Marce

Yeah, and I think it's a good reminder that volatility isn't always about fundamentals. Sometimes it's just fear, or, you know, algorithms reacting to headlines. But it does make you rethink your risk, especially when the news flow is this unpredictable.

Mark Dalli

And, you know, the week started off strong—markets were up on June 6th, thanks to that jobs report. But by Friday, all those gains were wiped out. It's a classic case of how quickly sentiment can turn. I always tell clients, don't get too comfortable when things are calm. The storm can come out of nowhere.

Ray Marce

Yeah, and speaking of storms, let's talk about inflation. The May CPI came in at 2.4% year-over-year, which is a bit above the Fed's 2% target, but not as bad as some feared. Mark, what do you make of Powell's response?

Mark Dalli

Well, Powell's in a tricky spot. The Fed's been pretty clear they're watching the data, and with inflation ticking up just a touch, they're not panicking. The 0.1% monthly increase was actually below expectations, so I think Powell sees this as manageable for now. But with tariffs starting to bite, there's a risk inflation could creep higher later in the year. The Fed's basically in 'wait-and-see' mode—no rush to cut rates, but they're not ruling it out for later in 2025 if things soften.

Ray Marce

Yeah, and I think that's the right call. I mean, if you cut too soon, you risk stoking inflation. But if you wait too long, you could choke off growth. It's a tough balancing act. And for investors, it's just more uncertainty to deal with. I mean, I might be wrong, but I feel like the market's almost hoping for a rate cut, even if the data doesn't quite justify it yet.

Mark Dalli

Yeah, and you see that in company earnings too. In Q2, a lot of management teams were talking about higher input costs—not just from inflation, but from tariff uncertainty. Some companies managed to pass those costs on, others took a hit to margins. It's a mixed bag, and I think that's going to continue as long as the policy outlook is this murky.

Ray Marce

So, to sum up, we've got a big new bill with some questionable math, markets that are swinging on every headline, and a Fed that's basically saying, 'let's see what happens.' Not exactly a recipe for calm, but that's what makes this job interesting, right?

Mark Dalli

Absolutely. And we'll be here to break it all down for you as it unfolds. Ray, always a pleasure.

Ray Marce

Likewise, Mark. Thanks for listening, everyone. We'll catch you next time on Equity Research. Take care.

Mark Dalli

Goodbye, all. Stay sharp out there.