Financing the Froot Loops

The tale of Amazon’s rumored ‘tariff fee’… U.S. consumer sentiment is in rough shape… Inflation is a concern… The rise of ‘buy now, pay later’… Financing the grocery store bill… What this could mean for U.S. stocks…

The story of the morning…

Early today, a report made its way around Washington, D.C. via Punchbowl News… that retail giant Amazon (AMZN) was planning to “display tariff costs for consumers.”

The report said the company “doesn’t want to shoulder the blame for the cost of President Donald Trump’s trade war” and “the shopping site will display how much of an item’s cost is derived from tariffs – right next to the product’s total listed price.”

A few hours later, a reporter asked White House Press Secretary Karoline Leavitt about the report.

Leavitt responded that she had just spoken with Trump on the phone and he considered it a “hostile and political act” by Amazon.

Amazon shares fell 2% almost immediately afterward.

About two hours later, Amazon said some people in the company’s “Haul” division were considering showing import charges on “ultradiscount items,” but that the plan was never approved and never planned for its main website.

“Good move,” Commerce Secretary Howard Lutnick commented on social media.

Turns out, Trump called Amazon founder Jeff Bezos about the issue in between the initial report and Amazon’s statement.

Amazon shares moved back toward even later in the day. The condensed news cycle – which would have taken days, if not weeks, to play out the last time tariffs of this significance were discussed back in President Herbert Hoover’s days – was seemingly finished for the time being…

But the discourse ignored that consumers are still facing potential rising prices, with or without a “tariff-fee” label.

Checking in on the consumer…

Consumer sentiment – the feelings of “We the People,” who drive roughly 70% of American economic activity – has been a hot topic lately.

Daily tariff headlines, questions about what they are and what they’ll do to the economy, and tensions between Trump and the Federal Reserve have hurt folks’ outlook on the economy.

We heard a local real estate agent delicately address the topic the other day. “Because of what’s going on in the world,” she said, people are shying away from listing homes for sale. Home prices have started to come down nationally, on average.

This morning, the Conference Board’s widely followed monthly Consumer Confidence Survey came out. This survey has been published each month since 1977. It’s based on a sample of 3,000 questionnaires that the Conference Board – an independent business membership and research organization – sends to Americans about their present economic situation and future expectations.

According to the survey, U.S. consumer sentiment “plunged” in April based on the outlook for things like employment and future income. More respondents see their financial situation worse off in 12 months than ever before in the survey’s history (since the Conference Board began asking this question in 2022).

Inflation is a big concern…

The survey showed 12-month inflation expectations hit 7% in April, the highest level since November 2022. And mentions of tariffs hit an all-time high – specifically when it comes to increased prices.

Those fears may very well come true. As Stansberry’s Credit Opportunitieseditor Mike DiBiase wrote in his most recent issue, tariffs will likely lead to an uptick in prices…

Yale University’s Budget Lab expects the tariffs to cost the average American household an additional $3,800 this year. That’s the equivalent of a 2.3% rise in prices.

That’s on top of the sticky inflation we’re already seeing. Both the consumer price index and the personal consumption expenditures (“PCE”) price index are still above the Fed’s “target” of 2%. (We’ll get the most recent update on PCE tomorrow.)

The Conference Board’s consumer confidence reading now sits at the lowest level since May 2020, when we were in the peak of COVID-19 lockdowns. That’s in large part because of the uncertainty surrounding tariffs and the broader economy.

However, there’s a divergence between surveys like this (where people say how they feel) and what folks actually do with their money. As we explained in a recent quarterly earnings breakdown of some of the big banks, spending data is still rising (even if an increased amount of spending is happening on credit cards).

So while consumers may be feeling worse about the economy, they’re still opening up their wallets. Except now they’re “putting it on their tab” more than at any other time in the past decade-plus.

According to the New York Federal Reserve, Americans had a total of $1.21 trillion in credit-card debt outstanding at the end of 2024.

And as we’ve written in previous Digests (like here and here), more and more folks are falling behind on their credit-card payments. They’re also choosing to “buy now, pay later.”

What the ‘buy now, pay later’ boom means…

If you’re not familiar, buy now, pay later (“BNPL”) loans are a way for folks to break up their purchases into installments if they can’t afford the total cost outright. According to a new report from loan marketplace LendingTree, BNPL purchases are usually for discretionary items like clothing and electronics.

But there’s a new area that folks are using BNPL for: necessary purchases like food. From LendingTree’s report…

More users buy groceries with BNPL. 25% of BNPL users say they’ve used the loans to buy groceries. That’s up from 14% just a year ago, amid rising prices at the supermarket. One-third of Gen Z BNPL users say they’ve done so, making it the fourth-most common BNPL purchase for that age group, trailing clothing, technology and home decor.

So more young adults are financing their groceries – everything from bread to Froot Loops cereal – to spread out the bills over multiple payments. That’s a worrying sign for the future of consumer spending.

Even worse, folks are falling behind on BNPL bills…

LendingTree’s survey showed that 41% of respondents have made late payments on their BNPL loans in the past year. That’s up from 34% a year ago. So it’s not just credit-card debt that folks are having a hard time paying back.

As Apollo Global Management chief economist Torsten Slok shared over the weekend as part of a 40-slide presentation on the consumer and tariffs, the amount of Americans only making the minimum payment on their credit cards and delinquencies as a percentage of total credit-card debt are both at their highest levels since at least 2012.

So yes, folks are still spending. That’s important for companies’ continued earnings potential. But underneath the hood of the economy, more of this spending is being done through credit cards and BNPL loans.

With consumers falling behind on these payments at levels we haven’t seen in more than a decade, risks for an economic bust are growing. And that spending will eventually grind to a halt when the bills aren’t paid.

As Mike wrote in the April issue of Credit Opportunities, he believes the economy has already entered a recession. The market may be shrugging off red flags like rising corporate bankruptcies and consumer debt…

But at some point, these warning signs are going to become too big to ignore. And that’s when the market could enter panic mode once again, when the risks facing the economy are staring “everyone” right in the face.

What all this means for U.S. stocks…

We can’t tell you exactly what will happen next in the economy and markets. Nobody has a crystal ball. But we can prepare for the possible outcomes…

The “good” news is that it appears Mr. Market has already panicked over the Trump tariffs and their potential knock-on consequences to consumers.

The S&P 500 Index fell almost 20% from an all-time high on February 19 through April 8. The bond market also sold off a few weeks ago as traders reacted to the potential for a major growth slowdown. This pushed the 10-year Treasury yield higher – with its biggest one-week move since 2001. (Remember, bond prices trade inversely to yields.)

Lately, the White House has been signaling a softer tone on tariffs and says it plans to reach trade deals with major partners, even China (although that seems like a distant outcome right now since it’s unclear if both sides are even talking).

Here’s what we do know…

Since Trump announced a “90-day pause” on exceptionally high tariff rates on April 9, the S&P 500 has rallied about 11%. The equally weighted S&P 500 is up 10%.

Volatility has also come down from extremely high levels above 50 to a more typical range, close to 25, as measured by the CBOE Volatility Index (“VIX”). The VIX measures the expected 30-day volatility for stocks based on activity in the options market.

But a historic VIX spike to above 50 could, counterintuitively, be a bullish signal for U.S. stocks. As Stansberry Research senior analyst Brett Eversole wrote today in the free DailyWealth newsletter…

The VIX spikes in times of extreme fear. And the recent spike was the third-most extreme reading since the data began in 1990.

The only other times we’ve seen the VIX above 50 were in March 2020 (in the thick of the pandemic-induced stock crash)… and throughout late 2008 and early 2009 (during the worst of the global financial crisis).

We know those were smart times to put money to work. But to get more examples, I looked at every unique time the VIX spiked above 45. That has happened seven other times. And overall, they were fantastic opportunities to buy stocks. Take a look…

In the words of investing legend Warren Buffett, it’s wise to “be greedy when others are fearful.” And history backs up that idea. You can crush the typical return on stocks if you buy when fear spikes.

As Brett showed, similar setups to today led to an average of “3.7% gains in three months, 7.5% gains in six months, and massive 23.1% gains over a year. Plus, stocks were higher a year later 86% of the time.” He continued…

Of course, there will be more volatility in the short term. There’s no guarantee we’ve already seen the market bottom. But we are seeing the kinds of things that happen near market bottoms.

That’s a positive sign. It means the worst could already be behind us. And that gives us the opportunity to buy aggressively once stocks begin trending higher once again.

Another indicator relevant to times of crisis – the high-yield credit spread – has also fallen by about 90 basis points since April 7, almost as much it rose after Liberation Day earlier this month.

Of course, there’s a risk that the market is putting too much weight behind expected trade deals and underestimating the potential consequences of things like inflation and the labor market.

In the short term, tariffs – and the threat of them – are having real impacts on consumers, businesses, and the economy in general. As we’ve written lately, small businesses are stressed, and decision-makers have become frozen due to uncertainty around future costs. The global supply chain is also seeing disruptions.

Incoming freight shipments to West Coast ports, for example, have plummeted 30% in some cases. It’s not hard to imagine that there could be empty store shelves weeks down the road with continued “panic buying” – whether there’s an advertised “tariff fee” or not.

If investors start to worry about the “worst case” scenarios again, we’ll likely see volatility return.

But for now, fear has eased in the market. Today, the major U.S. stock indexes moved higher, with the S&P 500 closing up for a sixth straight day, its longest streak since November.

Putting it all together… we urge you to keep a diversified portfolio, with shares of high-quality businesses that will be in demand no matter what happens with the economy and “hard assets” like gold, which have stood the test of time to protect against inflation.

For more about this idea, be sure to check out our friend and colleague Dan Ferris’ latest market briefing about how everything we’re seeing today is pointing to a global “reset” known on Wall Street as the “Mar-a-Lago Accord.”

Dan says Trump’s next move could wipe out as much as 40% of your money in the next few years. So he’s sharing a four-step plan to protect and grow your wealth. (Extreme Value and Stansberry Alliance members, you already have access to the details here.)

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Recommended Links:

‘I’m Predicting Another 40% Crash – Move Your Money by April 30’ The expert who predicted the Lehman Brothers collapse in 2008 and this year’s sell-off just issued what he calls the most urgent warning of his career. He says “Liberation Day” was just the beginning. What comes next has gone “viral” in hedge-fund circles… and yet practically nobody on Main Street understands the “Mar-a-Lago Accord.” He lays out all the proof… plus a detailed plan for exactly what to do. Make sure you see this by tomorrow. Mayday! Mayday! While most investors are feeling stranded and confused by this whipsawing stock market, they don’t realize a blistering stock market melt up could be about to begin – starting on “May Day” (May 1). That’s according to a respected 30-year market veteran… a man who has charged as much as $100,000 for a single research report. Today, he’s revealing this buried May Day story for FREE. Mark May 1 on your calendar and watch this immediately.

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New 52-week highs (as of 4/28/25): WisdomTree Japan SmallCap Dividend Fund (DFJ), Dimensional International Small Cap Value Fund (DISV), Enel (ENLAY), iShares MSCI Germany Fund (EWG), FirstCash (FCFS), K+S (KPLUY), Lonza (LZAGY), Sandstorm Gold (SAND), VeriSign (VRSN), and Vanguard Short-Term Inflation-Protected Securities (VTIP).

In today’s mailbag, feedback on yesterday’s edition… more of your experiences and ideas about tariffs… and thoughts on potential tax legislation coming up…

“We are a small business in Alabama. We sell Chinese manufactured industrial products such as hose and couplings. We started bring extra containers in last summer. So far it has worked out to our advantage with prices going up. Buy low sell high thinking. When we start bringing more containers in prices will be whatever they are at the time. We will pass prices on to our customers. These tariffs have been a windfall for us.” – Subscriber Rick H.

“I’d have to ask those who are so vocal… We now have almost $1 trillion in interest on the national debt. Every citizen is indebted by their government by a number that is somewhere over six figures. Exactly what are your solutions? If you’re so unhappy with what the current administration is trying to do? Blather, hatred, political posturing, and greed, are not solutions.” – Subscriber Jon R.

“It seems our country is within a few trillion of going bankrupt right now. Anyone not wanting DOGE to do its job as fast as possible seems crazy, or I don’t fully understand the situation… The current obligations of our government are too big to be fixed without something big happening, or do you see it differently.” – Subscriber Mark N.

Corey McLaughlin comment: I see it the same way – our government obligations, and government in general, are way too big – but I don’t see DOGE doing anything big enough to cut into spending. This looked like the best chance in decades to see a significant reduction, but it appears the outcome will be relatively small. I suspect that’s why Elon Musk is turning his attention back to Tesla.

“Were President Trump to achieve the elimination of, or a substantial reduction to the income tax, I would superglue a glow-in-the-dark, plastic statue of him to the dashboard of my pickup…” – Subscriber R.F.G.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
April 29, 2025