More Tariff Concerns Send Markets Lowers, and Is a Breakout Coming for Biotech? 7/7/25

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast breakout. One top analyst saying the group may be poised for an updraft. He'll lay out his case, give us his best picks in the space. Plus, Tesla tumbles on Elon Musk's latest political announcement. MGM gets a bearish call from Goldman Sachs and America's deficit reckoning. We take a look at the potential fallout from President Trump's budget bill. I'm Melissa Lee. Come to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan and Steve Grasso. And we start off with a break in the record rally.

0:46Stocks dropping today after President Trump announced a 25 percent tariff on goods from Japan or South Korea, as well as a handful of other countries. The S &P falling eight-tenths of a percent from the all-time high hit on Thursday. The Nasdaq down nearly one percent, while the Dow shed 422 points. And take a look at the Japan and Korea-linked ETFs taking a big leg lower after the levies were announced. A slew of other countries receiving letters and tariffs in just the last hour. For the very latest, let's get to Megan Casella, who is at the White House. Megan. Hey, Melissa, everything moving fast in this hour, but 14 countries as of now have received letters from the president laying out the tariff rate that all of their exports to the United States will face as of August 1st, unless they strike a deal in the meantime.

1:29These are tariff rates ranging from 25 percent up to 40 percent on the high end. And as you mentioned, Japan and South Korea, by far the largest trading partners on this list, both seeing tariffs of 25 percent kicking into effect. Other ones on the list, Bangladesh seeing something like 35 % all the way up to Cambodia and Thailand, both at 36%. So a big range here, and you can see these clashing along the screen. But what I'll emphasize are some top-line details here on all of these, all effective August 1st, and they'll be separate from any tariffs that are already in place or forthcoming on sectors specifically.

2:01They're all subject to change higher if countries do retaliate, or they could be moved lower if countries agree to drop some tariffs or non-tariff barriers. And the pattern that I would flag here, Melissa, is that all of these rates, while these letters are blustery and they're quite forceful, all of these rates either match or are slightly softer, lower than they were announced back on April 2nd. So what we're mostly doing here is moving the goalposts and saying from the July 9th deadline, moving that to August 1st now for these higher country-specific tariff rates to take effect. We do expect the president to sign an executive order to that effect.

2:34He was set to sign executive orders this afternoon. We don't believe that has happened yet, but we'll keep watching it, and we'll be reading through the text of that executive order once we have it. It's interesting, Megan, because all these countries, you would imagine that we don't buy that much in goods in terms of dollar value, and we can't possibly expect to have a trade balance with any of these countries. And the bigger countries are still targets that have yet to be announced. I mean, Secretary Bessenden mentioned this morning in Squawk that he was off to China, or meeting the Chinese counterpart sometime in the next few weeks.

3:02Where do we stand on some of the bigger trade deals to come? LISA DESJARDINS, CEO, That's really important to emphasize, because China, Canada, Mexico, and the European Union are by far the U.S.' largest trading partners, and they are not being impacted by any of these higher reciprocal tariffs. They are all sort of on separate tracks here. On China, we have that very fragile trade framework that's in place that was first established in Geneva and sort of cleaned up in London. Now we're waiting to see whether China lets some of its rare earths exports start flowing before we can sort of move further.

3:32They have an August deadline before those tariffs are set to ratchet back to 145 percent, so a lot at stake there. The EU has been saying they still expect to strike a deal by July 9th. We haven't heard any updates officially from the White House about the European Union. They have just continually said that things remain difficult there. And then with Canada and Mexico, we know there's been some back and forth with Canada in particular. Recently, both of those countries being really impacted, particularly by the steel and aluminum tariffs. Those negotiations are ongoing. They were never part of the reciprocal tariffs.

4:03So a separate track entirely. But you're right to flag that those four are the ones that matter the most. The rest of it, while it matters somewhat, it's by far not the majority of the U.S.'s trade. Megan, thank you. Megan Casella at the White House. So what was this pullback all about in your view, Tim? Well, it was a combination of we now have headline risk, right? We just don't know that there's going to either be follow through on where we are. The nice, as Megan referred to, we have this implicit extension. Seems like we actually got an August 1 extension is the good news today. But that there are definitely places where the administration is going to dig in.

4:36Japan and South Korea are really important trading partners. I'm sorry. I understand that the European Union and China go ahead of them. But I do think that the headline risk for a market where we had a VIX sub 16 last week, that's really what this is. We're coming from all time highs. We're coming off a holiday period where people, I think, also were lightly positioned and remain somewhat lightly positioned, but still very much overweight equity. So I think we're at a place here where this effective tax rate, I think we're going to hear a lot of chief economists around Wall Street begin to kind of chime through and begin to come through with some numbers on what these imputed tariffs mean, because we are getting real numbers here.

5:13By the way, the tariffs also don't include sectoral tariffs. So there can be more specific tariffs on steel, et cetera, depending on the industry and what the U.S. finds. So, Tim, touch on it. I mean, if you look at the VIX today, you know, up 0.31, so 1779. And the last time we had a big announcement on tariffs, obviously, was a very, very, very different story. So we've had an extraordinary run. If you I mean, we're just going back to Wednesday afternoon with this move today, which is really nothing. And then we had that levitation on the very light trading day. So I think this is just that people don't believe there is a tariff problem here, that it's just rhetoric, that they're going to kick the cat down the road until they figure it out.

5:55This isn't what it's ultimately going to be. And it's sort of a, you know, just a head fake. But I think we are far from seeing this kind of ultimately those kind of tariff numbers. Yeah, it comes down to credibility, right? So we came out in early April, and this seemed like the perfect storm. If you think about it, there was a lot of trepidation about this. There was a lot of chaos going on, I think, in and around just new policy that was being implemented away from economic sort of stuff. And so you had a situation where the market was actually selling off into this. Now, it fell out of bed.

6:27This is that first week of April. And then they blinked. And they blinked maybe because of the stock market. But I think for many reasons, we all have come to learn that they were worried about the bond market. They were worried about interest rates going higher. If you look at where we are right now in the 10-year, we're at like 4.4 percent. Now, you could say that's for other reasons, but the stock market is also obviously much, much higher than it was. So now you have the situation where, like Tim just said it, you're going to have to have strategists start to figure out what the implication might be on a base case scenario with tariffs across the board.

6:59Maybe it looks like 15 percent. You also have a Fed that seems to be worried about growth, right? They just lowered their sort of growth expectation. Make no mistake about it. If the president is going to try to say, well, we're going to take in hundreds of billions of dollars in tariffs from these other companies or countries, like that's got to come from somewhere. Right. It either has to come from the supply chain. It has to come from the exporters. It has to kind of get eaten by consumers or the companies. And that's going to slow growth. So at the end of the day, you could say that we're in a much more calm environment about this, that we realize that, you know, the taco trade.

7:31Right. That they're always going to cave in or continue to push this down the road. But, you know, who knows? I mean, the president may go further with this. You have tax that went through last week, right? You have the situation geopolitically where it seems like he's got a handle on some of these big situations. They may say, listen, stock market's all-time highs. The interest rate situation seems kind of in check here. Like, let's see how far we can push this thing right now. Don't forget about that jobs report, too. The jobs report came in. It was pretty good. I mean, in the data, there isn't yet any real read-through in terms of impact from tariffs.

8:02We haven't seen that yet. Right. And we haven't really seen any inflation spiking because of tariffs. So that was the main result. I think I'm somewhere in everyone's camp, but I like Karen's approach. Karen's approach. I'm not even sure what camp I'm in. If I sat back and listened, it was very entertaining. If you look back in April, we slid at 19 percent. The first day was down 10 percent. So to Dan's point, we become a little bit numb to it. But to Karen's point, maybe this will work out a lot quicker than it did then. But it was a handful of days. We rallied 10%. It was the biggest rally since 08 after it resolved itself.

8:43So it was April 1st or April 4th. And then on the 9th, we were in rally mode again and never looked back. Do you want to short this market in rally mode? that's what I think the real the real scary part is where do you dig in as a bear look at how much higher we are from April look at what rallied do we really think whether you call it taco whether you call it pragmatic or whether you call it carrot and the stick do we really think that President Trump is going to allow this to ruin the market and the tenure that line of the sand might be four and a half I think that's the point of pain I think I think that the real sort of debate or discussion is, you know, you can lay out all these cogent, rational, bear arguments in the market, and yet the markets still go higher.

9:32The data is still strong. So what do you do when you have these two things sort of pulling at each other? You have, you know, the rational sort of tariff should be impacting the economy. We should be seeing it in the data. And yet we're not. And the markets are at all time highs. Well, I don't think you're doing a lot. And I think what this is the camp I'm hearing is I'm not sure you're supposed to do a lot here. And this is markets that have come a long way. But I know we're about to have a conversation that really digs into sector by sector where where we do have issues. And it's just interesting because whether it's Vietnam or whether it's, you know, the BRICS over the weekend.

10:03I mean, these are places. India is a place where a lot of companies were thinking about moving supply chain, moving manufacturing. So so to assume it's all going to go away, I don't think it's going to go away. And and as someone that feels that the mega cap tech stocks are still pretty decent place to get growth at a pretty decent valuation, even though they're expensive relative to themselves. I'm not sure the last couple of days do anything, but we've had a parade of strategists. We've had a parade of people coming on. All we do is talk about what's been a V-shaped recovery and new all-time highs and position.

10:31And maybe it is just that. Maybe it's not even, maybe it's coming off of all-time highs last week that a lot, maybe it was 50 % or 80 % coming off of all-time highs and the algos read the trade headlines and sold off a little on the back of that. But I think it has more to do with all-time highs versus trade. Yeah. And when you talk about not showing the data, I mean, that might be something pull forward. We talked about that. We saw a lot of importers doing that. We saw a lot of consumers doing that. Now, if you think about multinationals, which are huge components, S &P 500 earnings, this tailwind, I think of a U.S.

11:02dollar index that is trading at three year lows. That's going to be something that's evident in their earnings. But I think the back half of the year probably gets a lot harder if you think about it, especially if they keep having this sort of uncertainty, kicking the can down the road. If you start seeing CEO sentiment weakening, and I think that's going to be the case, and especially in the small and mid-cap sector, look at the Russell 2000. It's flat on the year. It's downish or something like that. So to me, I think it gets harder. And then if you took it at a$275 S &P earnings number, which a lot of the most bullish strategists have, you're still at 22 and a half times.

11:35$275 is a big number, too. And you're still right there at 22 and a half times. Speaking of sector impacts, Bia Bayat with a note today looking at the impact of retailers of tariffs on Vietnam. While the levees announced last week put pressure on profits, analysts say the announcement provides some certainty ahead of the holiday order season. Joining us here on set is the analyst behind the note, Lorraine Hutchinson. Lorraine, great to have you with us. Hi, thanks for having me. Thanks for coming down the block. Yeah, long commute. Yeah, appreciate it. It's a trek. In terms of, you know, we saw the retailers when the Vietnam announcement was made last week, we saw some relief.

12:11Should there be relief or have we not factor that into forecasts? You know, I think the biggest news was certainty. And as we were just talking about, these retailers are about to place their most important holiday orders. So they're getting ready to be, you know, finalize everything for Christmas, which is when they make all their money. And up until last Thursday or Wednesday, they didn't know how much it would cost. So they're placing orders for goods and they didn't know how much it would cost. That is a Very difficult thing to do. And so Vietnam coming out at 20, I think, you know, poses some slight downward estimate revision risk.

12:45But really, it just gave the retailers some certainty around the price that they'll pay for these holiday goods. And Vietnam is the most important country for most public apparel and footwear retailers. So this was a really big moment. And I think that's why you saw the relief rally was just finally some certainty. The most important, even more so than China. Absolutely. Really? We've been in a decade-long shift of apparel and footwear manufacturing out of China into other less expensive Southeast Asian countries, and Vietnam was the primary beneficiary of that. What does this mean for the companies themselves, either in terms of passing that on, or how much of a margin hit is this going to be?

13:24What are you doing to your models? Yeah, so they've all come out. Effectively, all of our companies have come out and said, okay, a 10 % universal tariff and a 30 % China tariff. Here's our new guidance. So we have that all in the numbers. And for the most part, you know, there was a slight hit to numbers, but there's a lot of mitigation. And so the way the 10 percent tariff worked is about half of it was being taken care of by the factories and fabric mills in Asia. And then the other half was being taken care of by retail. And what does that mean? They're cutting costs. In some cases, they're raising prices.

13:56And in some cases, they're letting it flow through to the bottom line. So there were some slight downward estimate revisions when they all came out with these numbers. and now with Vietnam at 20, you know, another tens of basis points, not hundreds. So really it's not Armageddon for the retailers. Yeah. In terms of mitigation and price increases, how much of, you know, if a sweater costs 10 percent more, 15 percent more, is put on that one sweater versus across a portfolio of products for retailers? Most of them are saying that they will just touch North America because that's where the tariffs are coming in.

14:33and many of them are saying only their higher priced products. They're trying to protect the low end, protect kids, things like that. But I think the important thing to remember is, you know, this is a highly discretionary category. The retailer thinks they set the price, but we set the price, right? If I walk into a store and this$10 t-shirt is now$12, I just don't buy it, right? I walk out and I wait and I wait until it goes on sale or I wait until I find something better. and eventually, usually, the price comes down to me. And so that's what's happened when we've seen other inflationary times for the apparel sector.

15:10The price increases don't usually go through, particularly at the low end. Now, at the higher end, where the consumer has more disposable income, they're less likely to notice$5 on$200. I know that sounds crazy, but$1 on$10 is a pretty big deal. Not when Dan's buying his sneakers. Right, but aren't we in a situation where, like, a U.S. consumer is not doing particularly great, And a lot of U.S. retailers are not doing particularly great. And so at some point, someone's got to eat that. And if margins start to degrade a little bit, we're coming off peak margins for the S &P 500 also. We are, but we're not coming off peak margins for retail.

15:44They've been struggling a little bit, as you said. We've been, if you look at our BAC credit and debit card data, clothing has been negative for three years. Because the consumer has a lot of demands on their wallet on product they need. You have to buy milk. You do not have to buy the$10 T-shirt. You can wait. And so we've seen clothing really struggle for a while. And so I think especially at that low end, right, where you're a month to month spender, if groceries are inflationary, you're having a lot more trouble buying that discretionary item. We've seen a lot of success at the middle, upper middle tier for price increases because that consumer is still OK.

16:20Markets near all time highs. Right. So, Lorraine, first of all, thanks for coming. Some of the names you talked about that have the most exposure were Lulu and Decker and I think Crocs and some others. Do you think they're going to be thinking, all right, we have to even diversify further? We've moved away from China. Now we have to keep doing it. How do they respond to this? On the diversification point, it depends. You know, we just got a whole other round of tariffs as I was walking up to see you guys. So it depends what happens where. Vietnam at 20 actually looks pretty good right now. So I don't think that there's a lot to be gained by diversifying further.

16:57We get a lot of questions about onshoring domestically. It's a very labor-intensive process to make clothing or footwear. I don't think that's realistic at all. So I think the moving around of production is probably behind us. And now it's negotiating with the fabric mills, negotiating with the factories, He's trying to consolidate your order so you're more important to each individual manufacturer, things like that. They're also trying to get more efficient domestically with their cost structures and things. Lorraine, thanks for stopping by. Thank you. Thank you. Bank of America. How are you feeling about the retailers here?

17:33Yeah, I think most of this is what we said in the A block originally when we kicked it off, that a lot of people have already thought this through. And you go with Walmart has a more diversified supply chain. Costco is more reliant on membership fees and they don't really buy source from China or Vietnam. Nike, everyone knows that they source 50 percent of the sneakers and 30 percent of their apparel from Vietnam. So I think it's all in the numbers already. It might actually be a buying opportunity. So I think I mean, she's saying basically they find a way to absorb it. I think that's right. I don't know how much the Vietnam currency has moved, if that's any absorption there, if that's weaker.

18:14Interesting currency. Right? The dong. The dong. Right. I knew you would enjoy that. Well, you said the currency. I just thought I'd mention it to people out there. They might be one. So Nike, long Nike. I think that the upside from Nike comes from a lot more than just how the Vietnam terrorists work out. Coming up, the AI arms race heats up as Corweave seals a$9 billion data center deal. the details, what it means for hyperscaler M &A next. But first, Elon Musk is getting back into politics and Tesla investors are not happy. What is next for the companies that CEO takes on yet another responsibility?

18:53This is Fast Money with Melissa Lee, right here on CNBC.

19:08Welcome back to Fast Money. Tesla is the worst performing stock in the S &P and Nasdaq 100 today, dropping almost 7 percent. This after William Blair downgraded the stock to a market performance, saying that losing the EV tax credit, along with the elimination of corporate average fuel economy fines, could be too much for the stock to handle. Also worrying, investor CEO Elon Musk seeming to get back into politics, announcing that he plans to launch a new political party, the America Party, which, of course, Trump blasted shortly after his announcement on Truth Social. So the feud goes on here, which is not also good for Tesla shareholders.

19:42Yeah, so we think about the loss of potential profitability coming from those emissions credits and then obviously demand issues that you might have if you lose those EV tax credits for consumers. What is going to fund CyberCap? I mean, that was the whole point about this, is that the high-end EVs is going back 15 years ago. were going to basically support the build-out of the mass market EVs. And they never even did that. They never even built a$25 ,000 EV because he wanted to focus on cyber caps. Now, there's no shortage of folks, banks, whoever, who might fund that cyber cap. But the way it's going with competition and the like, at least on the autonomous vehicle thing, it's going to be hard.

20:23And I don't think the market is pricing that right here with an$800 billion market cap. If you look at it, if Trump was a tailwind to Elon Musk when he was involved, it's a pendulum. He's the same headwind as he was a tailwind. I think it's worse. I think Tesla's more negative now. It could be. Tesla's a target as opposed to neutral. Yeah, I don't think he—even when Trump was running, he was not full bore into EVs. He was negative on EVs right from the start. So I don't think it's going to be a, OK, he did this. Now I'm going to get negative on him. I think he's always been negative on EVs, but I think this is a heavy, heavy headwind that you want to see how it clears out first.

21:04I'm just wondering that if it goes some retribution, right, that is so painful, particularly to Tesla. So let's say, you know, obviously doing big robotaxi launch. Let's say all of a sudden they don't they don't get approval for whatever reason on whatever level of government, whether it's a local text or broader. Could that happen if I were a Tesla shareholder? That's something I would be worried about. It's so central to the valuation story, even if it's not right now a revenue story. But that's something I would be afraid of. The EV thing, that's sort of been happening in slow motion for a long time.

21:36This would be something worse. I mean, think of all the things that have happened that might be, you know, negative, like tariffs or whatnot. CEOs can go to the White House and talk to the president, right? They're called, have roundtable discussion, whatever. Elon Musk is not going back. I mean, it's probably off the table. So there's no avenue to even resolve something like that. No, there's no avenue. And there's obviously there could be acrimony. There could be something on the other side of this. I think it's to me just it comes back to a combination of things, which include those second quarter delivery numbers where they miss consensus.

22:08You're going to see more downgrades, I think, to full year guide on EPS. I think the risks on execution as they move into these higher margin products that, you know, the bulls out there are hanging on to, you know, good luck. There is a certain sense of irony about this. So Elon had this political turn because he was not invited to a Biden administration event at the White House for EV makers. Do you remember that? That's going back all these years. And now, like you just said, he's not going back to the White House for for a whole heck of a lot much. I just think it's really important not just to think about Tesla here, but he's also talking about SpaceX.

22:43They're also talking about Starlink. There's a ton of regulatory stuff around this. And, you know, we've talked about this in the past. I mean, he has huge margin loans from the banks and he uses Tesla stock to do so. So, like, if he starts losing sort of contracts on both sides of the thing, it could be a real problem. You know, when you look at the stock, though, just very micro, very granular, when the stock sells off to this extent, it does rebound historically pretty aggressively in days from that. Oh, are you going to say it's a buy? No, it could be a trading event. But all you have to do is look at it.