Luke’s bull case today … why he’s pounding the table on “physical AI” stocks … bond spreads are looking healthier … are profit margins looking to expand?
So… has the bottom been set? Is the trade war panic fading? Are stocks gearing up to soar into summer?
We think so.
So says our hypergrowth expert Luke Lango.
In his Daily Notes in Early Stage Investor last Thursday and Friday, Luke profiled the enormous rally the market has enjoyed in recent days. His bottom line is simple…
It’s time to get bullish on stocks again.
Let’s pick up Luke’s analysis as he discusses the ongoing trade war:
Just three weeks ago, the average effective U.S. tariff rate had surged to 27% post–Liberation Day.
Now? That number is trending toward 20%, thanks to a flurry of exemptions and softening language out of D.C.
Most recently, Trump is now considering exempting automakers from Chinese auto tariffs — a move that would meaningfully pull the effective tariff rate lower. And that’s just the beginning.
Here’s our base-case tariff forecast:
- May: Trade deals with allies (EU, Japan, India) take tariff rates to ~17–18%
- June/July: China deal signed, driving rates down to ~10%
That’s the magic number. Wall Street loves 10% tariffs. It’s enough to posture, but not enough to disrupt. If we hit that level this summer, we believe stocks will be off to the races.
To Luke’s point, in its research video “What Tariffs Could Mean for Markets”, Morgan Stanley analysts said that a 10% tariff would have only a modest economic impact. They suggest that a broad 10% levy would shave only about 2½ percentage points off earnings per share for affected companies.
Morgan Stanley also noted that a 10% tariff translates into roughly a 3–4% price increase for end-products, which they described as “not terrible.”
Luke’s bullishness extends beyond a positive conclusion of the trade war
A happy ending to the tariff drama is just one half of what’s needed to push the market back to all-time highs and beyond. Luke argues that we also need rate cuts from the Federal Reserve.
Last week, Luke highlighted Cleveland Fed President Beth Hammack, who said the Fed could cut rates in June if it sees clear direction in the data.
Luke anticipates that data will come in favorably, supporting that June cut.
Here’s his bottom line:
We see the Fed launching a rate-cutting cycle this summer, with multiple cuts into year-end.
Between lower tariffs and lower rates, the macro environment is shifting back toward one that favors growth assets, risk-taking, and stock market strength…
We think it’s becoming increasingly clear:
- The worst of the trade war shock is over
- A rate-cutting cycle is approaching
- Technicals are lining up for a major breakout
The convergence of these bullish factors leads us to one conclusion:
Stocks are ready to soar.
Luke is especially bullish on one corner of the market in particular – physical AI stocks
Think robots and the cutting-edge technologies that are the direct beneficiaries of President Trump’s massive push for the reshoring of manufacturing.
Here’s Luke:
You can’t rebuild American manufacturing without robots.
In America, there’s an abundance of “not enough.” We have: not enough workers, not enough skills, not enough cheap labor. The math is clear — automation must fill the gap.
That’s why the next great fortune won’t come from chatbots or cloud software. It will come from physical AI—the robotic arms, vision sensors, and autonomous movers that transform concrete slabs into fully automated factories.
This Thursday at 7:00 PM Eastern, Luke is holding his 2025 Summer Panic Summit. It will dive into why we’re on the cusp of a looming “$7 trillion summer buying panic” stampede back into the market. Luke believes this buying frenzy is going to send a tiny group of these physical AI, small-cap AI leaders soaring.
From Luke:
Today, roughly $7 trillion is parked in money-market funds, earning about 4.5% while investors wait for better opportunities to pop up.
In other words, we’re all waiting for a catalyst that could be the pin that pops the “cash bubble,” unleashing a violent rotation back into stocks — what we’re calling the 2025 Summer Panic
In fact, I’m so confident that this big event scheduled to take place very soon – May 7 to be exact – that it is virtually guaranteed to trigger huge moves in the market.
I’ll bring you more on this tomorrow. But to instantly sign up for the event with one-click, just click here.
Circling back to Luke’s general prediction for the market based on the trade war and the Fed, here’s his takeaway:
We think stocks are on the launching pad for over 20% gains over the next year. Let’s make sure we make the most of this opportunity!
There’s also good news on the bond front
Stocks soar and crash for all sorts of reasons, but bonds are simpler.
If you plan to hold a bond to maturity, the primary concern is straightforward: Will you get your money back?
That makes the bond market a more grounded indicator of economic stress.
Earlier this month, the bond market was flashing major warning signs, but in the last few weeks, it’s begun to find its footing.
We can see this by looking at the spread between high-yield (or “junk”) bonds and so called “risk free” U.S. Treasurys. This difference in yields – known as the high-yield credit spread – tends to widen when investors grow concerned about the economy.
The spread widens because when conditions get shaky, riskier companies are more likely to default, and investors demand extra compensation to lend to them.
Below, we’ll look at the ICE BofA U.S. High Yield Index spread. This tracks the relationship between junk and Treasuries.
Notice how it soared between February and its peak on Monday April 7 (a reading of 4.61). But since then, it’s pulled back sharply.
The latest reading, as of last Friday, was 3.67 – a significant pullback.
This is welcome, bullish news.
It’s showing us that bond investors – often referred to as “the smart money” – are finding their confidence again.
To be clear, it doesn’t guarantee a happy ending, or that we’re through the worst of the volatility, but it’s encouraging.
For one final piece of good news, are profit margins set to expand?
FactSet is the go-to earnings data analytics group used by the pros. In its most recent weekly update from last Friday, it asked the question on many investors’ minds today:
Given continuing concerns in the market about tariffs and higher costs, what is the S&P 500 reporting for a net profit margin for Q1?
It turns out the blended net profit margin (what’s been reported to far and what is forecasted for the remainder of earnings season) for the S&P is 12.4%. While that’s below Q4 2024’s net profit margin, it’s above where we were one year ago, and also besting the 5-year average (11.7%).
More surprising is how forecasts are shaping up for the rest of 2025. Here’s FactSet:
It is interesting to note that analysts believe net profit margins for the S&P 500 will improve through the rest of 2025.
As of [last Friday], the estimated net profit margins for Q2 2025 through Q4 2025 are 12.5%, 12.9%, and 13.0%, respectively.
Of course, the wildcard in such forecasts remains the trade war.
But coming full circle, if Luke is right, we’re within weeks of the drama being in our rearview mirror.
Given his encouraging market analysis, as well as the positive news on bonds and margins, here’s Luke with some bullishness to take us out today:
The clouds are parting. Momentum is shifting. The data is improving. And the charts are waking up.
We think stocks have bottomed — and we’re very bullish heading into the summer.
Have a good evening,
Jeff Remsburg
