Tariffs wiped out all the gains through corporate profit declines, says Brian Reynolds

Market Outlook - Reynolds Strategy is broadly bullish on the market, anticipating financial engineering will drive stock prices higher [1][2] - The market may experience near-term volatility due to a larger-than-expected budget deficit before stocks reach new highs [4] - Institutions are significantly bearish, with short selling at a record high as a percentage of shares, potentially leading to a short squeeze if the S&P 500 rises approximately 100 points [10] - The market is expected to become overheated later in the year, with a potential selling point at 6,500-6,600 on the S&P 500, one standard deviation above trend [11] Corporate Profits and Tariffs - Corporate profits were down 18% last quarter, the first drop since the start of the pandemic, largely due to tariffs [2] - Tariff-related inflation is impacting retail sales as consumers have finite incomes [8][9] - Declining corporate profits have offset the gains expected from tariffs, increasing the budget deficit [4] - Uncertainty surrounding future tariff policies could introduce more volatility into the market [7] Stock Buybacks and Valuation - Stock buybacks, driven by the credit market, have been a leading cause of higher stock prices since the 2008 financial crisis [9][12] - Buybacks slowed down when stocks hit new highs this winter but accelerated after the panic in April, now driving stocks to new highs [13] - Earnings yields compared to junk yields suggest stocks are fairly valued, providing arguments for both bulls and bears [13]