As markets grew overly optimistic following signs of easing in US-China tariff talks, a new wave of container shipments from China has
already started arriving in the US.
Looking back to early May — before the negotiations — the market was still debating whether US-China tariffs would be adjusted after the
weekend talks, but container shipping data had already revealed the direction: by late April, the number of freighters on the China-to-US
West Coast route had fallen by 40%. Then, in the first week of May, it jumped by 27%.
The Port of Los Angeles projected that the third week of May would see a record 180,000 TEU in inbound cargo for the year. These goods
were tied to additional orders placed on April 24 by retail giants like Walmart and Home Depot after closed-door meetings at the White
House. This signals that some large companies had advance knowledge of a “tariff easing” and were already repositioning their inventories.
Key Timeline
April 24: Retailers received a White House warning about tariff costs (getting advance information).
April 25–30: The top 3 retailers restocked at a record pace for a single week — the fastest buying spree since the COVID outbreak.
May 1–7: Cargo ships accelerated departure, freight rates rebounded 8.3% and logistics responded swiftly.
May 12–20: The first batch of goods arrived just as US-China negotiations were wrapping up.
This “policy arbitrage” pattern proved effective during the COVID period. At the time, giants like Walmart received a duty exemption notice 3
weeks in advance, extending their inventory turnover by 21 days more than their competitors — a significant gap.
The current situation is even more delicate. Nearly half of the 90-day tariff buffer period (April 10–July 10) has already elapsed, turning
inventory restocking and policy adjustments into a race against time. The outcome hangs in the balance.
Inventory Signals Point to Weakening Final Demand
However, there’s a risk of a data disconnect:
Retailers’ inventory turnover has fallen to 23 days (compared to a pre-pandemic average of 35), signaling weakening terminal demand.
Meanwhile, manufacturers’ inventories surged 18% year-over-year.
If tariff costs are passed on to consumers, buyers may face a “buy now, price drops later” scenario — a form of asset depreciation.
The Lag in Fed Policy and Risk of “Triple Misalignment”
At the May FOMC meeting, Powell emphasized a “data-dependent” approach to rate cuts, tightly linking policy triggers to hard data: core
PCE inflation must remain below the 2% target for at least six months; the unemployment rate must exceed the 4% threshold with an upward
trend; and wage growth must reverse from the current 4.1% year-over-year increase.
This policy lag may lead to a “triple disconnect”:
Market sentiment vs. corporate earnings: The Nasdaq has rebounded 24% from its lows, yet S&P 500 non-financial corporate profit margins
have declined year-over-year for the first time since 2016, indicating a divergence between market performance and corporate profitability.
Financing costs vs. liquidity perception: The 3-month real Treasury yield rose to 2.1%, the highest since 2009, signaling rising real financing
costs; however, liquidity illusions persist. Corporate bond issuance yields climbed to 6.5%, buyback volumes shrank 37% year-over-year,
and credit markets tightened—highlighting a disconnect between policy expectations and corporate behavior.
Historical parallels vs. weakening earnings growth: The current market rebound resembles the 2000 dot-com bubble period when the Fed
paused rate hikes for 11 months. At that time, tech stocks traded at 32x EBITDA; today, AI-related stocks trade at around 29x. The critical
difference is that corporate earnings growth has slowed sharply from 15% to 5%, significantly weakening the earnings-driven rationale.
Three Imminent Data Shocks Ahead
The next three key data points pose major downside risks to the market:
June 11 — CPI Data (First Wave Shock):
The critical indicator is the core CPI excluding food and energy. If it falls below 4%, it would significantly boost rate cut expectations.
However, beware the “substitution effect” trap: a 6.3% year-over-year decline in used car prices may mask persistent inflation in the
services sector, complicating inflation assessment.
July 3 — Nonfarm Payrolls (Second Wave Shock):
The warning threshold is two consecutive months of job gains below 150,000, which would force a revision of the interest rate path.
Currently, the gap between wage growth (4.1%) and labor productivity (1.1%) is widening, intensifying cost pressures on businesses.
September — Federal Reserve Meeting (Third Wave Shock):
If the manufacturing PMI new orders index stays below 45 for three consecutive months, it signals recession risk. This could prompt an
“insurance rate cut” similar to August 2019, but the magnitude will be limited.
Three Anchors for Investors
In this context, investors can consider three key anchors:
Lag Effect Calculator:
Tariff costs typically take 1-2 months to pass from port arrivals to end prices; corporate earnings revisions usually lag PMI deterioration by
3-4 months; and Fed policy responses follow hard data confirmation by 1-2 quarters. The process resembles a relay race.
Data Verification Priorities:
Short-term focus on June CPI (service sector inflation) and July Nonfarm Payrolls (employment structure); mid-term focus on September
PMI new orders (recession signal); long-term focus on core PCE inflation persistence (necessity of rate cuts).
Asset Allocation Strategy:
Defensive assets: Short-duration Treasuries (hedge against rate volatility) and consumer staples (low inventory, resilient demand).
Risk hedges: VIX futures and increased gold holdings (hedge for high real interest rate environment).
Sector focus: Areas with inventory cycle mismatches (e.g., semiconductor destocking nearing end) and industries with high earnings certainty (e.g., utilities, healthcare).
Conclusion
The current market is caught in a fragile balance where policy expectations lead but data verification lags behind. Investors need to build a
transmission model linking data, policy, and market, with a focus on how the June CPI and July Nonfarm Payrolls may recalibrate the Fed’s
policy path. At the same time, caution is needed against cascading effects triggered by the “bullwhip effect” and “asset depreciation.”
Historical experience shows that when policy lag diverges from market narratives, it often signals significant turning points.
Remember this rule of thumb:
When Walmart’s restocking pace outstrips wage growth, when Fed statements lag behind shipping data, and when policy arbitrage becomes
the survival strategy for companies — the true economic inflection point has already emerged within the cracks of the data.