SOTS 2nd Hour: AI Arms Race, Tariffs Hit Prime Time, Big Banks Downgraded 7/8/25

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Carl Quintanilla (1:02)

Good Tuesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Courtney Reagan, Mike Santoli here at Post 9 of the New York Stock Exchange. David and Sarah have the morning off. Market's trying to find some legs after that. Sell-off yesterday brought about by some tariff noise, although we did get a little bit of rebound at the end of the day. Treasury's a little elevated as well as the long bond re-approaches 5 percent. Today, separating the tariff news from the noise. We will talk to former US trade rep Ron Kirk about the latest twists and turns on trade, and what really matters for investors. Plus, should Tesla's board step in and curb Elon Musk's political ambitions, we will ask former Tesla president current GM board member John McNeil. Let's begin though with the market as stocks do come off the worst day in about three weeks, following yesterday's barrage of tariff headlines. But Bank of America and Goldman today, both raising their targets on the S&P. BofA goes from 6300 from 5600 for its year end. Goldman raises its 12 month forecast from 6500 up to 6900 Mike. Costin's point at Goldman is that you might get a more dovish constructive backdrop from the Fed as well.

Mike Santoli (2:05)

Yes, and this process where the strategists are sort of marking their opinions to market reflects, I think one of the stronger bullish points of the last few months, which is that professional investment posture has been made offsides by the strength of this rally. And you also have this sort of making our peace with the macro outlook as it stands right now. You get the budget bill through, it means there's no fiscal payback to worry about. Credit spreads are great. Seems like we're in a decent mode of expecting very low chances of recession. When you kind of put that in place, it means maybe you can absorb the noise on tariffs. Now, there's an old saying on Wall Street that's only mostly true, not always true, which is the market never discounts the same news twice.

And you could argue that yesterday was the same news as April 1st or April 2nd, in the sense that it was essentially reiterating, if you don't come to the table, we will impose these things. And it's a way of extending the deadline without seeming like it being a full concession. That being said, market came into the week overbought. The mega caps have done a lot of the work, and it's hard to know what you get out of them. Seasonal factors are a tailwind, but only till mid-month. So, I think there's a lot of back and forth, and now you have, as we say, strategists no longer fighting the rally, even though they're not really exuberant about it.

Courtney Reagan (3:26)

Do you think the market is still expecting the ultimate average tariff rate will settle in around the 15% mark?

Mike Santoli (3:32)

I think that's everyone's working premise. Now, whether the market has truly priced for that, in every respect, I think is debatable. I think there's right now a lot more comfort than we had before, that it's all just kind of going to be dispersed in the sauce. It's not really going to be something that we're going to see in an acute way, either in pricing or in margins. It's just going to kind of be generally dissipated. Maybe that's a little bit optimistic, but I think that we have a service-based economy and not a very trade-dependent one, and we're leaning on those benefits, plus 40% of the S&P is digital stuff that's not affected by it.

Courtney Reagan (4:08)

So you go with that analogy. It's maybe not the overwhelming flavor in the sauce, but it's there, right?