**Corporate Impacts of Tariffs** Corporate America is feeling the effects of new U.S. tariffs. U.S. importers are primarily covering the initial costs, leading to worries about losing customers if they raise prices. Major companies like GM, Nike, and Hasbro are mostly absorbing these costs, but price increases may happen later this year. Inflation for some goods is rising, evidenced by the June Consumer Price Index jumping to 2.7% year-on-year, up from 2.4% in May. Interestingly, Chinese suppliers have lowered prices by about 20%, less than expected. Several companies are reporting financial challenges due to tariffs. GM spent $1 billion on tariffs in the second quarter but did not raise prices broadly. Stellantis faced a $350 million profit decline. Hasbro predicts a full-year tariff expense of $60 million and is planning to raise prices and cut costs. Nike estimates a fiscal impact of $1 billion and also intends to raise prices. RTX has seen profit drops due to tariffs, while Walmart has slightly adjusted some prices by managing inventory. Smaller businesses, like florists, are struggling to absorb or pass on these costs. The overall tariff burden has surged to 17% from 2.3% last year. Companies are tightening their budgets, exploring ways to boost productivity, and revising strategies while monitoring market responses. **Market Volatility and Opportunities** Given the pressures on corporate America, we believe that market volatility is mispriced right now, creating opportunities. Companies are absorbing costs rather than raising prices immediately, leading to uncertainty about future profit margins and consumer inflation. The CBOE Volatility Index (VIX) has hovered around 13-14, below its historical average of about 19. This suggests that options for hedging or speculation are relatively cheap. We expect sectors heavily reliant on imported goods, such as consumer discretionary and industrials, to perform poorly in the short term. Earnings warnings from Nike and Stellantis may signal a broader trend we’ll see in upcoming quarterly reports. Data from FactSet suggests a slight decrease in S&P 500 net profit margins for the third quarter, supporting bearish strategies on ETFs like XLY (Consumer Discretionary) and XLI (Industrials). This cost absorption might keep inflation figures lower than expected, providing the Federal Reserve a chance to cut interest rates. The latest Consumer Price Index (CPI) report showed a year-over-year increase of 3.3%, a manageable figure that supports the idea of monetary easing if it remains stable. The CME FedWatch Tool indicates over a 60% chance of a rate cut by September, a probability that may increase if companies continue to hold off on price hikes. We can look back at the 2018-2019 trade conflict for context. During that time, affected companies first experienced profit margin drops before eventually passing costs to consumers. In this period, stocks in impacted sectors initially lagged behind the S&P 500 but eventually caught up when price increases were implemented. This suggests we may see short-term weaknesses in some company stocks, followed by an eventual inflationary turn. Create your live VT Markets account and start trading now.

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