The Consumer Will Continue to Spend: Nancy Tengler

Wall Street strategists are rapidly changing their forecasts for the S&P 500 Index due to President Trump's frequent policy reversals and announcements.

Strategists such as Ed Yardeni and David Kostin of Goldman Sachs have recently raised their year-end targets for the S&P 500, citing improved trade negotiations and lower tariff rates.

The frequent changes in forecasts highlight the challenge of predicting the market's trajectory under Trump's presidency, with some economists warning that the negative impact of tariffs may still be felt in the months ahead. Nancy Tengler is the Chief Executive Officer and Chief Investment Officer of Laffer Tengler Investments to discuss her outlook on the markets.

US inflation rose by less than forecast in April amid tame prices for clothing and new cars, suggesting little urgency so far by companies to pass along the cost of higher tariffs to consumers.

The consumer price index, excluding the often volatile food and energy categories, increased 0.2% from March, according to Bureau of Labor Statistics data out Tuesday. That marked the third-straight month of softer-than-forecast readings.

The CPI report highlights two underlying dynamics in the economy. Goods categories exposed to higher tariffs, including new cars and apparel, didn’t see the kind of price increases that economists had expected by now. That suggests importers and retailers are absorbing some of the extra costs and imported products sold now had arrived before the brunt of the tariffs — namely on China — were in effect.

Separately, some weakness in services categories like travel and recreation suggest consumers are cutting on leisure and other discretionary spending.

The temporary agreement reached over the weekend to de-escalate the trade war with China has largely scaled back projections of how much damage tariffs will inflict on the economy. While several economists say the US is now likely to avert a recession, the duties will still keep inflation well above the central bank’s target.

The 90-day reprieve — a move that brought the combined 145% US levies on most Chinese imports down to 30% — suggests some relief. But should the catch-up period to restock supply create congestion at ports, that may actually lead to faster price increases in the CPI, according to Bloomberg Economics.

And even with the reduction, US importers are still wrestling with higher trade costs and fear they could jump again when the pause is up.

The limited pass-through from tariffs could be seen in so-called core goods prices, which exclude food and energy and barely rose in April, per the CPI data.

“We might be in a bit of a sweet spot right now for core inflation trends. Core goods prices have yet to reflect the impact of the tariff hikes that have taken place since February, while services inflation continues to gradually ease,” Brian Coulton, chief economist at Fitch Ratings, said in a note. “Core goods inflation is likely to pick up in the next few months as inventories of goods imported pre-tariff hikes get depleted.”

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