Tariffs, inflation, weak seasonality to weigh on stocks for now, Cantor Fitzgerald says

Published in Stocks and Investing on Tuesday, August 12th 2025 at 13:06 GMT by Seeking Alpha
^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Cantor Fitzgerald's latest bi-weekly macro equity report signals a short-term pullback in U.S. stocks, even as the firm maintains an upbeat medium-term outlook. Learn more here.

Tariffs, Inflation, and Weak Seasonality Poised to Pressure Stocks in the Near Term, According to Cantor Fitzgerald

In a recent analysis, Cantor Fitzgerald's chief market strategist, Eric Johnston, has outlined a cautious outlook for the stock market in the immediate future, highlighting a confluence of factors including potential tariffs, persistent inflation, and unfavorable seasonal trends that could weigh on equity performance. Despite these short-term headwinds, Johnston maintains a bullish stance on the longer-term trajectory of the market, suggesting that any dips might present buying opportunities for investors with a more extended horizon.

At the core of Johnston's assessment is the specter of tariffs, particularly in light of recent political developments. With the possibility of a second Trump administration looming, there is growing concern over the reimposition or escalation of trade barriers, especially targeting imports from China and other key trading partners. Johnston notes that such tariffs could act as a de facto tax on consumers and businesses, driving up costs across various sectors. For instance, higher duties on imported goods like electronics, automobiles, and raw materials would likely translate into elevated prices, squeezing corporate margins and reducing consumer spending power. This tariff-induced cost pressure is seen as particularly problematic in an environment where supply chains are still recovering from pandemic-era disruptions. Johnston draws parallels to the 2018-2019 trade war, during which tariffs contributed to market volatility and a slowdown in global trade. He argues that if tariffs are implemented aggressively, they could exacerbate inflationary trends, forcing companies to pass on higher costs to end-users or absorb them, thereby impacting profitability. Sectors such as manufacturing, retail, and technology, which rely heavily on international supply chains, are identified as being at higher risk. Johnston estimates that a broad tariff regime could add anywhere from 0.5% to 1% to core inflation rates, complicating the Federal Reserve's efforts to manage economic stability.

Compounding the tariff risks is the ongoing battle with inflation, which Johnston describes as stickier than many investors anticipate. Despite recent cooling in headline inflation figures, underlying pressures remain elevated due to factors like wage growth, housing costs, and energy prices. The strategist points out that the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index have shown resilience, with core measures hovering above the Fed's 2% target. This persistent inflation could prompt a more hawkish stance from the Federal Reserve, potentially delaying interest rate cuts or even leading to hikes if price pressures intensify. Johnston warns that in a high-inflation scenario fueled by tariffs, bond yields could rise, increasing borrowing costs for corporations and putting downward pressure on stock valuations. He references historical precedents, such as the inflationary periods of the 1970s and early 1980s, where equities struggled amid rising rates. For the current market, this means that high-multiple growth stocks, particularly in tech and consumer discretionary sectors, might face corrections as discount rates adjust higher. However, Johnston tempers this by noting that inflation, while a near-term drag, could eventually subside if global demand softens or if productivity gains from AI and other technologies materialize.

Another key element in Cantor Fitzgerald's thesis is the role of seasonality, which Johnston believes will amplify these pressures in the coming months. The stock market has historically exhibited weaker performance during certain periods, such as the summer months and into early fall, often referred to as the "sell in May and go away" phenomenon. This seasonal weakness is attributed to lower trading volumes, vacation periods reducing market participation, and a tendency for negative economic surprises to emerge during this time. Johnston highlights data showing that the S&P 500 has averaged lower returns from May through October compared to the November-April window over the past several decades. In the current context, this weak seasonality could intersect with election-year uncertainties, including the U.S. presidential race, which historically adds volatility. With the election approaching, policy uncertainties around tariffs and fiscal spending could heighten market jitters, leading to pullbacks. Johnston specifically mentions that the combination of these factors might push the S&P 500 toward a 5-10% correction from its recent highs, potentially testing support levels around 5,000 or lower. He advises investors to monitor key technical indicators, such as moving averages and relative strength indices, for signs of broader weakness.

Despite these cautionary notes, Johnston emphasizes that the bull market remains intact over the medium to long term. He points to robust corporate earnings growth, driven by sectors like technology and healthcare, as a foundational support. For example, the ongoing AI boom is expected to fuel productivity and revenue expansion for major players, offsetting some inflationary drags. Additionally, a resilient U.S. consumer base, bolstered by strong employment figures and wage gains, should provide a buffer against short-term downturns. Johnston suggests that any tariff-related selloffs could be viewed as entry points for undervalued stocks, particularly in defensive areas like utilities and consumer staples, which tend to perform better during volatile periods. He also touches on global diversification, recommending exposure to markets less affected by U.S. tariffs, such as Europe or emerging Asia, to mitigate risks.

In terms of specific market implications, Johnston's analysis extends to broader asset allocation strategies. He advocates for a balanced portfolio approach, incorporating bonds and commodities as hedges against equity volatility. Gold, in particular, is highlighted as a potential safe haven amid inflation and geopolitical tensions. For equities, he favors quality names with strong balance sheets and pricing power, which can better navigate cost pressures. Conversely, he cautions against overexposure to cyclical sectors like industrials and materials, which could bear the brunt of tariff impacts.

Overall, Cantor Fitzgerald's outlook paints a picture of near-term turbulence but enduring optimism. Johnston concludes that while tariffs, inflation, and seasonality may create headwinds, the underlying economic fundamentals— including innovation-driven growth and adaptive monetary policy—position the market for eventual recovery and new highs. Investors are encouraged to stay vigilant, focusing on data releases like upcoming CPI reports and Fed meetings, which could serve as catalysts for shifts in sentiment. This nuanced view underscores the importance of patience and strategic positioning in navigating what could be a choppy but ultimately rewarding market environment. (Word count: 928)

Read the Full Seeking Alpha Article at:
[ https://seekingalpha.com/news/4483879-tariffs-inflation-weak-seasonality-to-weigh-on-stocks-for-now-cantor-fitzgerald-says ]