Every new headline sends markets this way, with traders caught between a rock and a hard place. Geopolitics, tariffs, and economic data need to play out over the next two weeks before a clear direction unfolds.

 

The Iran/Isreal conflict remains in the shooting stage, with both countries rapidly depleting their store of missiles and air defenses. It seems the TACO (Trump always chickens out) trade can also be applied to warfare. Markets fell as President Trump talked tough, threatening Iran with bunker-busting bombs unless the country surrendered unconditionally.

 

Two days later, on Thursday, while the markets were closed, he announced that he was giving peace a chance. He said he would take two weeks to decide on his next course of action. That gives Iran time to find a diplomatic off-ramp to appease the U.S. on its demand to end its nuclear weapons program. Israel, on the other hand, is moving forward with its attacks on Iran's nuclear facilities despite Trump's decision.

 

The oil and gas markets are fluctuating by several percentage points per day. The dollar has also been climbing, while the traditional go-to safe-haven trade of gold is not working at all. Gold, throughout most of this conflict, has been falling while silver has skyrocketed. This is confounding traders, since the opposite is typically expected in times of geopolitical stress.

 

Cryptocurrencies are experiencing a similar decline to gold, which is no surprise. This underscores the argument that digital currencies are not a safe haven but rather speculative assets with a high correlation to equity markets.

 

The Federal Open Market Committee meeting this week, as predicted, decided to sit tight and see what develops. While some investors were miffed that the Fed did not cut interest rates (as President Trump had suggested), most investors were not surprised. Chairman Jerome Powell made it clear that he needed to see how the upcoming tariffs would impact the economy and inflation.

 

Readers are aware that I am in the stagflation camp. I anticipate inflation will rise throughout the end of the year, accompanied by a slowing economy. That puts the Fed in a box where they are damned if they do, damned if they don't.  Cutting interest rates would heighten inflation, but hiking rates would risk tipping the economy into recession. Sitting on their hands and watching how Trump's tariff and tax bill plays out is the only safe course available to them.

 

And speaking of tariffs,  where are all these deals we were promised? Only one has been inked, and that is with Great Britain, where the U.S. has a trade surplus!  How many times must we be assured they are coming in a week or two?

 

In an interesting progression, investors face a series of make-or-break events divided into roughly two-week increments between now and the middle of July. The decision on Iran will come first, followed by the passage (or not) of the Big Beautiful Bill on or around July 4. That may turn out to be the Big Ugly Bill, depending on who you are, but its passage would be a big boost to stocks for at least a day or two.  And then, we have the implementation of reciprocal tariffs (or not) on July 9th. The market expects that TACO man will kick the can down the road for the second or third time. I am losing count.

 

So, where does that leave the markets? As I said, expect a chop fest. Last week, I narrowed my upside range for the markets based on the outbreak of war in the Middle East. Since then, the S&P 500 Index has gone nowhere. Next week, barring a cease-fire and peace between the two combatants, markets will continue to gyrate based on the latest headlines.

 

That leaves the market's range bound and probably short circuits my hope that we could reach 6,100-6,250 on the S&P 500 anytime soon. Now, don't take that as gospel because events could turn on a dime, propelling stocks higher. I just think that the probability of reaching my former targets has lessened. In July, however, I do expect we will be cruising for a bruising that could pull that average down by 400 points or so. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at [email protected].

Death and destruction are not something that anyone wishes for, but all too often, conflict has occurred frequently over the past years. Historical evidence suggests that in regional disputes markets typically recover within a few days or weeks.

 

Does that mean the financial market participants are uncaring or callous? Not at all. In most cases, markets rebounded because the underlying economic cycle, either in the U.S. or worldwide, was expanding. This growth not only supported markets but also helped move them higher despite geopolitical uncertainty. Conversely, during periods when the market struggled to find its footing, it was mainly due to broader market conditions.

 

Morgan Stanley Wealth Management recently conducted a study on key geopolitical events dating back to 1940, starting with Germany's invasion of France and ending with Russia's invasion of Ukraine in 2022. They examined the stock market's performance three, six, and twelve months after each event and compared it to periods without notable geopolitical events.

 

They found that, on average, the markets underperformed over three months, but over six- and twelve-month periods, the returns were identical. It was as if the conflict or crisis had never happened. There were some geopolitical events that had a significant and lasting impact on equity markets, but market conditions also played a part.

 

The 9/11 bombing of the World Trade Center, for example, occurred about the same time as the dot-com boom and bust unfolded, causing the NASDAQ to fall substantially and take the rest of the market with it. In 2022, during Russia's invasion of Ukraine, the Federal Reserve Bank raised interest rates roughly at the same time, sending stocks lower.

 

If we look back through the 20th century, strong bull markets occurred despite World War II, the Vietnam War, and conflicts in the Middle East. Most of the exceptions to this rule centered on energy. The 1973 oil shock disrupted markets for over a year, resulting in a period of stagflation in the United States. The sudden spike in oil prices, occurring at a time when oil was in short supply, disrupted the economy and led to significant inefficiencies. And yet, Russia's invasion of Ukraine, which temporarily caused oil prices to gyrate, came down again rapidly as additional oil supply came onto the market quickly.

 

A critical difference today is that the U.S. is largely energy independent. It is the world's largest producer of oil and gas. U.S. oil production now exceeds 13.3 million barrels per day. That is more than Saudi Arabia, Russia, or any other member of OPEC.

 

That is not to say that geopolitical risks have no impact. On a country-by-country basis, the story may differ significantly. While the U.S. market has barely skipped a beat throughout the Russia/Ukraine war, the European Community had a different experience. After breaking its dependence on Russian energy, the EU economy suffered from a lack of supply and sky-high energy prices.

 

That difference explains the reason why the continuing turmoil and conflicts in the Middle East have not caused more than brief and shallow declines in the stock markets. The present war between Israel and Iran has seen oil prices spike from the mid-sixties to the mid-seventies dollars per barrel and are presently fluctuating by 1-2% per day based on the most recent developments.

 

Fears that Iran, in retaliation for Israel's continued attacks, decides to block the flow of 20% of the world's oil through the Straits of Hormuz has investors on edge. However, there has been little follow-through in the equity markets thus far. This situation could change if the U.S. decides to take a more proactive role in the conflict.

 

No one knows how long this present daily exchange of bombardments will last. Israel has stated that it will take at least two weeks, if not more, to accomplish their objective. They intend to remove the threat of an Iranian development of nuclear weapons. If  U.S. forces become involved, I would expect a deeper market decline. However, if history is any guide, markets will regain their upward momentum in reasonably short order.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at [email protected].

Stretched, overbought, extended - use whatever word you want, but the market needed a pullback, and Israel provided one.  The markets, displaying remarkable resilience, climbed a wall of worry only to find geopolitical risk at the top.

 

On Thursday night, Israel's bombing of Iranian nuclear facilities precipitated the heftiest decline in weeks. Be assured not everything declined. Oil soared 8 percent. Safe haven bids spiked higher. Gold closed in on record highs, and the dollar rebounded from multi-year lows. 

 

Throughout the week, the markets were beset by negatives, with that wall of worry stretching higher and higher. The markets simply shrugged off the negatives while inching higher. Riots in LA couldn't phase the markets. Stocks, despite two days of tension over the outcome of the China-U.S. talks in London, remained firm. Fears around a mid-week U.S. 10- and 30-year bond auctions were taken in stride by investors. Not even the results of the latest inflation data could deter investors from buying stocks

 

And while that wall of worry stretched higher and higher, most of those bricks turned out to have a somewhat happy ending. The protests are still ongoing and have spread to various cities, but demonstrations over the administration's immigration policies have been peaceful for the most part. The China talks ended with both parties announcing a 'framework' for further discussions. That was better than both sides storming out of the talks, but progress toward a real trade agreement remained elusive.

 

This week's Consumer Price and Producer Price Indexes showed no real evidence of tariffs having affected the data. The numbers came in line with my predictions for CPI; month over month, excluding food and energy, rose a measly 0.1 percent.  On an annual basis, CPI rose 2.4 percent, even lower than my 2.5 percent projection for May. The Producer Price Index had a similar result.

 

The last ten-year and thirty-year U.S. Treasury bond auctions went badly, and markets sold off as a result. I suspect that Secretary Scott Bessent did not want a repeat of that circumstance and took steps to ensure a better auction this time. It's called "financial repression," a term used to describe the heavy-handed intervention of the government. Behind the scenes, I am sure the government prodded banks and bond dealers to bid for bonds even when they may not have wanted to. It happens far more often than you might expect. 

 

On the tariff front, the TACO (Trump Always Chickens Out) effect suggests that the reciprocal tariffs scheduled to take effect in a few weeks will be postponed again. Secretary Bessent has already said as much in his testimony before the House Ways and Means Committee this week.

 

The Federal Open Market Committee will meet next Tuesday and Wednesday. I do not expect the members to change their wait-and-see policy despite the president's almost weekly social media posts urging  Chairman Powell to do more. His latest outburst was a social media post demanding the Fed to cut interest rates by 1 percent.

 

I may have to lower my short-term target on the markets depending on the duration and severity of the present turmoil between Israel and Iran. Usually, geopolitical events like this roil the markets for a day or three before returning to normal. However, the Israelis say they are planning a two-week operation to destroy Iran's nuclear capability. If so, that could mean a widening of the conflict and create more volatility in the financial markets.

 

I expected the S&P 500 to hit 6,100 to 6,150 over the next two weeks before a downturn into July. That two-week timetable has just been upended. Technically, markets could still rise, but the probability of the last leg of this move upward has now been substantially lower.  As I wrote last week, "It is a tricky bugger to forecast," and Isreal just made it more so.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at [email protected].

Birthdays, anniversaries, holidays, deaths, Valentine's Day, Mother's and Father's Day, graduations, the list goes on and on. The greeting card industry remains a global institution in the gift-giving world despite experiencing slumping sales.

 

Greeting cards have been around for more than 180 years. First inspired by the Japanese art form called "origami," an English artist, Sir Henry Cole, created the first hand-pressed Christmas cards in 1843. These cards were initially used as invitations to his dinner party. The trend caught on, and throughout the nineteenth century, consumers sent greeting cards to friends, family members, and acquaintances for every kind of special occasion. The first American card was produced in 1874. These cards were made with thick paper and printed and colored by hand and were easily affordable for most people. Times have changed.

 

My question is why cards are so expensive. The average cost of a greeting card from the Geeting Card Association is about $4.50. I will believe that when I see it. This weekend, I went shopping for a 25th anniversary card for my wife and paid more than $8. I mean, really. A flashy gold embossed drawing on the front. A mildly sweet but heartfelt message about how much she means to me. A bit of ribbon like a bookmark on the second page, and that's it.

 

As a couple, we must easily spend at least $150 a year if I count the cards we give to friends and relatives. Why do we do it? In this digital era, where most communication lacks depth, taking the time and effort to pick out a card and write something endearing at the bottom, as I often do on a physical card, is a gesture we think is worth it.

 

Somehow, writing with a pen creates a genuine connection, and for us, when displayed over the mantel, it brings a sense of love, happiness, and celebration. And if you are like my wife, a greeting card can be kept forever, becoming a treasured item that holds sentimental value and evokes lasting memories. Evidently, we are not alone in those emotions. 

 

Nine out of ten households buy greeting cards. The average American sends and receives approximately 30 greeting cards or more per year, according to Greeting Card Market Research. U.S. consumers purchase about 6.5 billion cards every year, with retail sales between $6 billion and $8 billion. Worldwide, the industry generates over $16 billion annually, down from $23 billion in 2020. Sales are expected to decline further, with some analysts predicting the industry will shrink to $20.9 billion by 2026.

 

Obtaining data on this industry is challenging since most companies are privately held. There are a handful of large companies, such as Hallmark and American Greetings, which together account for 82% of the market. It is estimated that the profit margin for the entire sector averages about 11%. This lack of competition partially explains the continued high prices for cards. It is a mystery to me why there are not more entrepreneurs entering this market.

 

Anyone with photo editing software can design a greeting card, and there are no barriers to entry for selling cards, such as a license to create and sell them. You can't copyright a quote or saying, so the contents of the card can easily be copied. And it can't be just the convenience at the point of sale because cards sold online are just as expensive.

 

One reason may be that selling items is more expensive than producing them. Getting your product into retail stores, such as grocery, drugstore, or supermarket chain, is extremely difficult. You need to have a variety of designs in multiple categories; simply offering a line of birthday cards won't suffice.

 

 All these outlets have similar overhead costs. Greeting cards occupy a significant amount of display space and often remain on the shelf for an extended period. As such, the rate of turnover is low. "Congratulations on your college degree" card to your grandson comes around infrequently. In the meantime, cards are thumbed through and damaged, and many of the categories may not be high on the shoppers' list of cards.

 

Retailers offer cards to generate incremental revenue. They have found that most customers seldom buy cards because of the lower price, so discounting your card price is not going to siphon customers from elsewhere. Shoppers buy for the convenience, so stores mark the price up to what customers are willing to bear. The retail mark-up is between 50-100 percent.

 

To many, it might seem like Baby Boomers are the last holdouts when it comes to sending Christmas cards or $10 bills in birthday cards, but that is not entirely true. It is true the young do not bother with greeting cards, but neither did I when I was young. Yes, the internet, text messages, and the like are immediate, far cheaper, and less hassle overall — no picking out cards, licking stamps, writing addresses, etc. Facebook walls, for example, are an easy way to keep up with birthdays, but that's about it.

 

However, according to the annual U.S. mail survey, the greeting card category has been increasing for the last three years. Additionally, estimates suggest that 40 percent of greeting cards are not sent through the mail but are instead hand-delivered or tucked into a gift’s wrapping. Social media may actually help the industry since it notifies us of birthdays, deaths, new jobs, and other events that people tend to share on their profiles.

 

 And it is millennials who are the main drivers. They have also contributed to the higher pricing levels of greeting cards, because they are buying the more expensive, embellished, and heavier paper missives with lots of glitter and ribbons. A high-quality greeting card is often crafted by hand, which requires time and effort.

 

Inflation is hitting every industry, and greeting cards are no exception. Prices for paper, especially thicker cardstock, are climbing. The labor to design more intricate cards and add foil, letterpress, and video is also increasing. Yes, cards are much more expensive.   And I will complain, as is my right, but neither my wife nor I will end our love affair with the greeting card anytime soon.

 

 

Stocks should climb a bit higher this month. The next round of tariffs is not due to be levied until July nor will Trump's Big Beautiful Bill (BBB) be passed until then. That gives investors some breathing room to book some gains.

 

The first-quarter earnings season is just about over. Overall results have beat estimates by 6 percent with 79 percent of companies delivering an upside earnings surprise. The incoming economic data has been mostly favorable but much of the data reflects an economy that has been rushing to purchase what it can before the onset of further tariffs.

 

A key economic indicator, The Institute for Supply Management (ISM), data for May showed a slowdown in business new orders and services and an increase in prices and employment. That is in keeping with my own forecast of an ongoing mild case of economic stagflation.

 

The employment numbers for May — a gain of 139,000 jobs — indicated that the labor market remained largely resilient amid the government's new tariff policy. I am forecasting a slowdown in the economy but am still expecting a 1.8 percent gain in GDP for the second quarter, followed by a 1.36 percent gain in the fourth quarter — slow but no recession. Those data points are a bit higher than most economists are expecting. On the inflation front, I see the Consumer Price Index for April announced to show a 2.36 percent increase year-over-year. Regular readers know I am predicting that the data will begin to show an uptick in the inflation rate that will continue into year's end.

 

That is one reason why I doubt the Federal Reserve Bank will bow to the president's wishes to cut interest rates anytime soon. The bond market has penciled in two rate cuts before years' end, but it is hard to see that happening with rising inflation. One caveat would be that if the tariff war drove the economy into recession, while employment fell off a cliff, the Fed might be forced to cut.

 

In the meantime, after months of promising trade agreements were just around the corner, Wall Street is in a "show me" frame of mind. The most progress on trade this week was a brief phone call between the president and his Chinese counterpart and a meeting with the newly elected German leader, Friedrich Merz. Investors are convinced that the TACO (Trump Always Chickens Out) tariff play is alive and well within the White House.

 

The administration has until June 9 to justify its sweeping tariffs under the Emergency Powers Act before the U.S. Court of Appeals. If unsuccessful, the Court of International Trades' decision a week ago to block those tariffs will stand. If so, legal experts predict the case will go to the Supreme Court immediately. In the meantime, our trading partners will most certainly drag their feet in tariff negotiations.

 

And while investors are no longer "tariffed," the spending side of the BBB is before the Senate. It has been crucified by the president's best bro and megabucks campaign backer, Elon Musk of Tesla. Musk has blasted the BBB as a "disgusting abomination" and demanded Congress "Kill the Bill."

 

 The forever friendship of the two amigos seems to have hit the rocks, if their vitriolic exchanges on social media this week are any indication. Will they kiss and make up? Let's hope so. Musk, through his ownership of X, has a large and powerful social media presence that could pose a serious threat to the bill's passage. Given their slim majority in both the House and Senate, the Republicans face the uncomfortable prospect of renegotiating the spending portion of this bill.

 

As for the markets, I wrote that the S&P 500 Index is in a trading range. My upside target is 6,100-6,150 or 100 to 150 points from here. This should happen in fits and starts working its way higher into July. At that point, traders will begin to discount the ramifications of possible tariffs and the passage of the tax and spending bill on inflation, growth, debt and the deficit.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at [email protected].