Playing “chicken” in markets can be a risky affair

When threatened, birds puff up their feathers to appear larger than they actually are, and squawk to signal aggression.

On Friday, U.S. President Donald Trump suggested he would no longer be “Mr. NICE GUY” to China after the country “totally violated” its trade agreement with America. The same day, Trump said he would raise tariffs on steel imports to 50% from 25%.

The escalations follow a détente in May, during which Trump reached a trade deal with the U.K., agreed with Beijing to sharply reduce reciprocal import duties and delayed for more than a month a tariff of 50% on the European Union — two days after announcing it.

Those glad tidings lifted stocks. For May, the S&P 500 rose 6.2% and the Nasdaq Composite jumped 9.6%, with both indexes enjoying their best month since November 2023. The Dow Jones Industrial Average gained 3.9% for the month.

But the mood among investors might change quickly, depending on communication coming from the White House.

The word “chicken” is used as a metaphor for cowardice. In reality, they can be dangerous — there have been reports of humans being killed by Colonel Sanders’ favorite bird.

Mixed U.S. markets for end of May
U.S. markets traded mixed Friday. The S&P 500 was flat, the Dow Jones Industrial Average rose 0.13% and the Nasdaq Composite fell 0.32%. Futures tied to the three indexes ticked down Sunday evening stateside. The pan-European Stoxx 600 index added 0.14% Friday, breaking a two-day losing streak. Germany’s DAX climbed 0.27% as the country’s inflation eased to 2.1% in May from 2.2% the previous month — but was still higher than expected.

Expected Trump-Xi talk
Trump and Chinese President Xi Jinping could discuss trade negotiations “this week,” U.S. National Economic Council director Kevin Hassett said on Sunday. The conversation might ease tensions, which rose after Trump on Friday said that China has “TOTALLY VIOLATED” its preliminary trade agreement with America, and Chinese U.S. embassy spokesperson Liu Pengyu responded by accusing the U.S. of engaging in “abuse of export control measures.”

Trump says he’ll double steel tariffs
Trump on Friday told steelworkers at U.S. Steel that he will raise import duties on steel to 50% from 25%. The new import duties will start June 4, the president posted on Truth Social. On Saturday, the European Union said it is “prepared to impose countermeasures, including in response to the latest U.S. tariff increase.” Even so, “tariffs are not going away,” U.S. Commerce Secretary Howard Lutnick said on “Fox News Sunday.”

Mild U.S. inflation in April
The U.S. personal consumption expenditures price index, the Federal Reserve’s preferred inflation reading, was muted for April. Prices ticked up 0.1% for the month, in line with the Dow Jones forecast. On an annual basis, it rose 2.1%, 0.1 percentage points lower than expected. Excluding food and energy, the core reading on which Fed policymakers tend to focus came in at 0.1% and 2.5%, against respective estimates of 0.1% and 2.6%.

Musk cuts himself from DOGE
Elon Musk bid farewell to his role at the U.S. Department of Government Efficiency Friday. At the press conference, Musk deflected a reporter’s question about a New York Times article detailing his alleged drug use last year. Tesla shares lost 14% this year amid Musk’s involvement in politics — but they gained 22% in May following Musk’s April statement he would spend less time at DOGE.

[PRO] May jobs report in focus
The U.S. nonfarm payrolls report for May, out Friday, will provide more information on how the economy is holding up amid Trump’s multiple tariffs —and play a big role in determining whether the May rally in stocks still has legs. Economists expect the number of jobs added in May to dip from April. It misses the forecast, markets could take a downturn as the White House appears to ratchet up its tariff rhetoric.

Investors are piling into big, short Treasury bets alongside Warren Buffett

Investors always pay close attention to bonds, and what the latest movement in prices and yields is saying about the economy. Right now, the action is telling investors to stick to the shorter-end of the fixed-income market with their maturities.

Long-term treasuries and long-term corporate bonds have posted negative performance since September, which is very rare, said Todd Sohn, senior ETF and technical strategist at Strategas Securities, on “ETF Edge.”

The only other time that’s happened in modern times was during the Financial Crisis,” he added. “It is hard to argue against short-term duration bonds right now.” 

It would seem that Warren Buffett agrees, with Berkshire Hathaway doubling its ownership of T-bills and now owning 5% of all short-term Treasuries, according to a recent JPMorgan report.