How much inventory did companies actually build ahead of tariffs? 🤷🏻♂️
Plus a charted review of the macro crosscurrents 🔀
📉 The stock market declined last week, with the S&P 500 shedding 0.5% to close at 5,659.91. It’s now down 7.9% from its February 19 closing high of 6,144.15 and up 58.2% from its October 12, 2022 closing low of 3,577.03. For more on how the market moves, read: One of the most misunderstood moments in stock market cycles ⏱️
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A big economic question right now: To what degree does today’s economic activity reflect a pull forward of purchases that would’ve occurred further down the road?
One of the actions some companies have taken to mitigate the impact of future tariffs has been to pulling forward expected future purchases and stockpiling goods before costs go up.
Various anecdotes from companies and a spike in imports at the beginning of this year suggest this pull-forward could be significant. Here are some notable quotes from Q1 earnings season:
“Our clients are getting ready. We're seeing some accelerating of imports to stockpile inventories.” - Citigroup
“Looking outside the U.S., demand for U.S. inbound services surged as customers pull forward inventory purchases ahead of expected tariff changes.” - UPS
“For transparency, you will see that we did build ahead inventory, and that's reflected in our manufacturing purchase obligations that you'll see on the quarterly filing when it comes out.“ - Apple
“We've done some forward buys of inventory where we're the first-party seller. Our third-party sellers have pulled forward a number of items, so they have inventory here as well.” - Amazon
“We built some inventory where possible in certain items as we anticipate that to happen. So that gives a little relief of amounts needed to in some of the items. But the impact should be mostly concentrated in the second half.” - Kraft Heinz
“As a precaution, we've taken steps to build inventory in certain markets to mitigate potential tariff impact in the short term.“ - WD-40
So how much extra stuff did companies stockpile?
Different analysts will give you different answers.
‘About 1 to 2 months’ ⏳
Deutsche Bank’s Binky Chadha analyzed the data to estimate how much extra inventory companies have accumulated.
It’s not much.
“In clear evidence of pre-buying, goods imports surged in Q1, especially in March, but relative to the prior run rate of $275bn a month, we estimate the excess imports over the last 3 months were about $190bn, or around 3 weeks extra,“ Chadha wrote in his May 2 research note.
The way companies manage inventory has changed in recent years.
“Companies typically maintain about 3 months of inventory,” Chadha wrote. “They have been raising that buffer over the last 10 years, especially since the COVID pandemic supply chain disruptions, and the lowest levels in the last 10 years have been about 2 months, which suggests companies could run their buffers down for a month at most in hopes for a tariff reprieve.”
In other words, companies were already carrying extra inventory before President Trump unveiled his aggressive view on tariffs.
“Excess imports combined with inventory rundowns gives companies about 1 to 2 months before the tariff impacts start to bite,” Chadha said.
So while Chadha’s estimate of “about 1 to 2 months“ of buffer for S&P 500 companies is arguably significant, it doesn’t even buy a quarter’s worth of time.
Some analysts think it’s less ⌛️
In a separate analysis of retailer inventories, BofA analysts expressed skepticism toward the idea that warehouses are well stocked. From their note (emphasis added):
“There was a surge in imports of consumer goods into the U.S. in March, according to Census Bureau data. Does this mean retailers' inventories are set to swell? In our view, no. The ratio of retailers' inventories to their monthly sales was not especially high in recent data to begin with. And at the same time, consumers also appear to have been buying ahead, with Bank of America internal data showing strength in consumer durables spending in March and April. Moreover, Bank of America internal data on retailers' payments to transportation and shipping companies does not suggest a big ramp up in inventories. And it appears container shipments into Los Angeles are likely down in May. So we think it is possible retail inventories may actually look 'lean' in coming months.”
It’s worth noting that the most recent retail inventories data from the Census only goes through February. So those particular figures are a bit stale.
That said, BofA makes a good point about consumers “buying ahead.” This suggests that a lot of goods left warehouses as quickly as they came in. This is consistent with government data on consumer spending, which has been very strong.
Goldman Sachs’ David Kostin analyzed the S&P 500 and came to a similar conclusion.
“1Q data do not show a buildup of inventories,” Kostin wrote on Friday. “The S&P 500 inventory to sales ratio declined year/year, with the largest declines in the Autos and Consumer Durables & Apparel industries. However, many retailers have yet to report 1Q results.”
The March retail sales report showed an unusual spike in autos sales, which supports the idea that consumers pulled forward purchases to front-run tariffs.
To Kostin’s point about fresh data, retailers will be announcing their Q1 results in the coming weeks. On Thursday morning we get Walmart’s earnings. That day also comes with the April retail sales and March inventories reports. Everyone will be watching for clues about inventory builds as well as how much inventory was cleared out by sales pulled forward.
Zooming out 🔭
Even if we had a more clear understanding of inventory levels, the bigger issue continues to be the uncertainty around tariffs.
If we ultimately get very high tariffs, then inventory stockpiling would’ve been a good move. If any new tariffs are low, then inventory stockpiling could prove to be a costly error.
There’s also the possibility that proposed tariffs or any tariff deals continue to get delayed, and this uncertainty nightmare persists.
The big picture 🖼️
These are uncertain times.
The economic data is sending ambiguous signals. Managers are having an unusually hard time forecasting the near future for the businesses. And investors and analysts are having an unusually hard time modeling where stock prices are headed in the coming months and quarters.
It’s periods like this where long-term investors have an edge: Time.
“Nobody knows what the market is going to do tomorrow, next week, next month,” Warren Buffett said last week. But as he often does, he argued, “The long-term trend is up.“
There’s basically three scenarios investors always have to consider: 1) Things improve from here, and the market goes up; 2) Things get worse before they get better, which means markets could fall before resuming a more firm rally; or 3) Things get worse and never get better.
If we’re facing scenario 3, then we may have bigger problems than stocks not recovering. But scenario 3 has never played out.
Scenarios 1 and 2 favor long-term investors. Maybe things get worse before they get better. (Note: Timing market bottoms is nearly impossible.) But staying long the stock market covers you in case the low of this cycle is behind us.
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Related from TKer:
The business community's 2-part plan for addressing tariffs 📋
Wall Street's view on tariffs summed up in two lengthy sentences 📝
Companies aren't withdrawing guidance — but there's a big caveat ✽
Smart people agree that the best investing wisdom shares a common theme 🧐
WATCH 📺
I joined Yahoo Finance on Monday to discuss Warren Buffett’s retirement announcement and the future of Berkshire Hathaway. Watch here»
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
🏛️ Fed holds rates, Powell warns on tariffs. In its monetary policy announcement on Wednesday, the Federal Reserve left its target for the federal funds rate unchanged at a range of 4.25% to 4.5%.
From the Fed’s policy statement: “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated. … Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
Here’s what Fed Chair Powell said about tariffs during the post-meeting press conference: “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.“
For more on how tariff rhetoric is affecting the economy, read: CHART: The confusing state of the economy 📊 and We're gonna get ambiguous signals in the economic data 😵💫
💳 Card spending data is holding up. From JPMorgan: “As of 29 Apr 2025, our Chase Consumer Card spending data (unadjusted) was 2.2% above the same day last year. Based on the Chase Consumer Card data through 29 Apr 2025, our estimate of the US Census April control measure of retail sales m/m is 0.46%.”
From BofA: “Credit and debit card spending per household increased 1% year-over-year (YoY) in April after a gain of 1.1% YoY in March, according to Bank of America aggregated card data. Seasonally adjusted (SA) spending per household was flat month-over-month (MoM), with the seasonally adjusted annualized growth rate (SAAR) remaining at 1.6% again for April.“
April spending is likely being boosted by consumers pulling forward purchases in an attempt to front-run tariffs.
For more on consumer spending, read: We're gonna get ambiguous signals in the economic data 😵💫 and Americans have money, and they're spending it 🛍️
💼 Unemployment claims tick lower. Initial claims for unemployment benefits fell to 228,000 during the week ending May 3, down from 241,000 the week prior. This metric continues to be at levels historically associated with economic growth.
For more context, read: A note about federal layoffs 🏛️ and The labor market is cooling 💼
👎 Inflation expectations mixed. From the New York Fed’s April Survey of Consumer Expectations: “Median inflation expectations were unchanged at the one-year-ahead horizon at 3.6% and increased by 0.2 percentage point at the three-year-ahead horizon to 3.2%, the highest reading since July 2022. In contrast, median inflation expectations decreased by 0.2 percentage point at the five-year-ahead horizon to 2.7%.”
The introduction of tariffs as proposed by president-elect Donald Trump would be inflationary. For more, read: 5 outstanding issues as President Trump threatens the world with tariffs 😬
⛽️ Gas prices tick lower. From AAA: “In the lull between spring travel and the kick-off to summer, gas demand slid week over week, dropping the national average three cents to land at $3.15. OPEC+ (the group of oil-producing countries) announced Saturday that it will increase output again in June, widening the supply surplus, which could cause crude prices to continue to fall. This means road trippers would see lower prices at the pump this summer. The national average is nearly 49 cents less than it was one year ago today.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
🚗 Used car prices rise. From Manheim: “Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) were much higher in April compared to March. The Manheim Used Vehicle Value Index (MUVVI) increased to 208.2, an increase of 4.9% from a year ago and also higher than March levels by 2.7%. This is the highest reading for the index since October 2023.”
🤑 Wage growth is cool. According to the Atlanta Fed’s wage growth tracker, the median hourly pay in April was up 4.3% from the prior year, up from the 4.2% rate in March.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
👎 Labor productivity falls. From the BLS: “Nonfarm business sector labor productivity decreased 0.8% in the first quarter of 2025 … as output decreased 0.3% and hours worked increased 0.6%. … This is the first decline in nonfarm business sector labor productivity since the second quarter of 2022. From the same quarter a year ago, nonfarm business sector labor productivity increased 1.4% in the first quarter of 2025.”
For more, read: Promising signs for productivity ⚙️
🏠 Mortgage rates flat. According to Freddie Mac, the average 30-year fixed-rate mortgage was unchanged at 6.76%. From Freddie Mac: “Mortgage rates stayed flat this week. At this time last year, the 30-year fixed-rate mortgage was 30 basis points higher and purchase applications were declining. Today, rates are lower and have remained stable for weeks, sparking continued increases in purchase applications.”
There are 147.8 million housing units in the U.S., of which 86.1 million are owner-occupied and about 34.1 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🤷🏻 Services surveys were mixed. From S&P Global’s May U.S. Services PMI: “While tariff announcements mean manufacturing dominates the news, a worrying backstory is developing in the vastly larger services economy, where business activity and hiring have come closer to stalling in April amid plunging business confidence. Business and consumer facing service providers alike, and especially financial services firms, are reporting markedly weaker growth prospects, citing intensifying uncertainty over the economic outlook amid recent tariff announcements and ongoing federal spending cuts.“
Meanwhile, the ISM’s Services PMI improved slightly in April.
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on soft sentiment data, read: The confusing state of the economy 📊 and What businesses do > what businesses say 🙊
🚢 Trade deficit balloons as imports surge. Here’s Bloomberg on March Census data: “The US trade deficit widened to a record in March as companies rushed to import products including pharmaceuticals as the Trump administration readied sweeping tariffs. The goods and services trade gap grew 14% from the prior month to $140.5 billion, Commerce Department data showed Tuesday. … Imports of consumer goods climbed by the most on record, primarily due to the largest-ever inflow of pharmaceutical preparations. Imports of capital equipment and motor vehicles also increased.”
From Bloomberg’s Michael McDonough: “Pharmaceutical imports led the surge, soaring to a record high in March as U.S. companies rushed to stock up before tariffs hit. Imports of medicines, vaccines, and blood-related products saw the biggest increases, highlighting companies' urgency to secure supplies.“
For more on the implications of purchases pulled forward ahead of tariffs, read: A BIG economic question right now 🤔 and CHART: The confusing state of the economy 📊
⛓️ Supply chain pressures remain loose. The New York Fed’s Global Supply Chain Pressure Index — a composite of various supply chain indicators — ticked lower in April and remains near historically normal levels. It's way down from its December 2021 supply chain crisis high.
For more on the supply chain, read: We can stop calling it a supply chain crisis ⛓
🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 63.3% on Tuesday last week, down six tenths of a point from the previous week. New York and Washington, D.C. hit new single-day record highs, up 2.7 points to 69.3% and one full point to 63.4%, respectively. Several other cities experienced losses, led by Dallas, where occupancy on Tuesday fell 4.4 points to 67.1%. The average low was on Friday at 34.8%, up more than nine full points from the previous week’s holiday.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
📈 Near-term GDP growth estimates are tracking positive. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 2.3% rate in Q2.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨
Putting it all together 🤔
🚨 The tariffs announced by President Trump as they stand threaten to upend global trade — with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get some more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings have a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Economy ≠ Stock Market 🤷♂️
The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% beat the index in the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. In fact, most professional stock pickers aren’t able to do this on a consistent basis. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock’s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.
