Tariffs didn't bite the stock market in May, but June could be a different story

Despite the stock market's strong May performance seemingly shrugging off tariff concerns, analysts warn of potential headwinds due to ongoing trade uncertainties. Container ship departures from China to the U.S. are down nearly 50% year-over-year, and accusations of trade agreement violations are fueling business hesitancy. Rising prices for household goods and electronics could pressure tech hardware and retail stocks, as producers pass increased costs to retailers, potentially challenging the current bull market.

Analysis

The equity market's recent strength in May may be underestimating persistent trade-related headwinds, as indicated by a significant decline in U.S.-bound container ship departures from China, which were down nearly 50% year-over-year as of late May according to Apollo Global Management. This downturn in shipping activity, coupled with President Trump's accusation that China violated their preliminary trade agreement, is fostering business hesitancy regarding import orders, contributing to a moderately negative sentiment. Inflationary pressures also loom; despite April's personal consumption index reading being slightly below expectations, State Street data shows a recent uptick in prices for household goods and electronics. This trend could disproportionately affect tech hardware and retail sectors, with the SPDR S&P Retail ETF (XRT) already noted as underperforming the S&P 500 in 2025, reflecting a negative sentiment for this ETF. The dynamic suggests producers are successfully passing on cost increases to retailers, who now face the critical challenge of transferring these to consumers. While Ritholtz Wealth Management suggests issues in sectors like retail are less impactful than the strength in Big Tech, the overarching uncertainty in trade routes and potential for escalating costs presents tangible challenges to the current bull market, particularly as the summer months approach.

Key Decisions for Investors

• Investors should closely monitor U.S.-China trade negotiations and key leading indicators like container shipping volumes for signs of stabilization or further deterioration.
• Consider reviewing exposure to the retail sector, particularly entities within the XRT ETF, and tech hardware companies, assessing their vulnerability to rising import costs and their ability to pass on price increases to consumers.
• Maintain a cautious stance towards the broader market outlook for the summer, as unresolved trade issues and nascent inflationary pressures could introduce increased volatility, even if certain large-cap tech segments show resilience.
• Focus on companies with strong pricing power and diversified supply chains that may be better positioned to navigate the current environment of trade uncertainty and cost pressures.