The markets look to finish this shortened holiday week slightly higher after another reversal and delay in tariffs sparked hope with investors. Perhaps the news that had the biggest impact, albeit creating further uncertainty, is when a three-judge panel at the U.S. Court of International Trade ruled that the currently imposed tariffs may not be legal. More on that later. When all is said and done, reasonably good economic data and company earnings took a back seat this week as tariffs once more took center stage.
Before we get to the economic data, let’s talk about the European Union (EU). While China agreed to come to the table a few weeks ago, the EU has been quietly absent. In a decisive move, President Trump imposed a 50% tariff on the EU, and to no one’s surprise, the EU suddenly became more responsive. Two days after the announcement, President Trump delayed the implementation of the tariff to July 9, giving negotiators time to do what they do best. Regarding China, news broke today that perhaps the negotiations aren’t going as well as first announced. It is these stories that move markets more than economic data and corporate guidance. The good news is that the economic data, while slowing, isn’t decreasing at an alarming rate. In fact, things appear better than we might have expected, understanding that a lot rides on trade negotiations over the next couple of months.
As for tariffs in general, the U.S. Court of International Trade ruled that most of the Trump Administration's levies cannot go into effect, taking away one of the president’s most effective negotiating tools. The White House submitted an immediate appeal to the ruling and was given 10 days to issue new orders based on the injunction. What’s at issue is whether Trump’s use of the International Emergency Economic Powers Act (IEEPA) of 1977 is applicable. The White House believes the U.S. trade deficit constitutes a national emergency, and the abdication by Congress of this legislative power gives the White House authority to act. Regardless, there are ways around this ruling, and despite some reservations, the tariffs will likely remain in one form or another, short of the Supreme Court chiming in on this issue.
In other news, we learned that unpaid student loans are sinking credit scores. In the first three months of 2025, approximately 5.6 million borrowers had their student loans marked as newly delinquent. During this period, 2.2 million delinquent student loan borrowers saw their credit scores drop by 100+ points, and for another 1 million, their scores dropped by 150+ points, per the Federal Reserve Bank of New York. That kind of drop is what usually happens after a personal bankruptcy filing, according to the Washington Post. The reason for this is that even though the pandemic-era repayment pause ended in 2023, unpaid student loans only began being reported to credit bureaus again in late 2024. This month, those delinquent loans have been sent to collections. Surprisingly, this affects not just millennials, but 2.9 million people age 62 and older with federal student loans, many of whom went back to college after the financial crisis in 2008. More than 450,000 borrowers in that age group are in default and are at risk of having their Social Security benefits garnished. It is reasonable to believe this could impact consumer spending, with Morgan Stanley estimating the restart of student loan payments cutting GDP by 0.1 percent per year. While this likely won’t have a large impact on the economy, it will sting if you happen to be one of those borrowers.
In closing, I came across a story suggesting real estate has turned into a buyer’s market. Last month, there were about 500,000 more people selling homes in the U.S. than there were people trying to buy them, according to Redfin. This is the biggest gap between buyers and sellers going back to 2013. Additionally, the number of brand-new unsold single-family homes rose in April to 117,000 – the highest it’s been since July 2009. The downside is that the median home price is a staggering $431,931, with the mortgage rate for a 30-year fixed loan still hovering around 7%. Coupled with economic anxiety, we have the recipe for a stalemate between buyers and sellers. Now you know.
Bruce J. Mason, MBA
