Market Week Recap: Earnings and OBBB Section 899. How A New U.S. Tax Weapon Is Driving International Fear

The final week of May 2025 delivered a complex mix of market signals, policy uncertainty, and corporate earnings that highlighted both the challenges and opportunities facing today's ETF investors. As markets closed out their best month since November 2024, the underlying currents revealed important lessons for anyone managing positions in U.S. equities during times of high volatility.

Market Performance: Quiet Close to a Winning Month

Wall Street wrapped up May with subdued trading on Friday, as the S&P 500 finished nearly unchanged with a marginal decline of less than 0.1%. The Dow Jones Industrial Average added 54 points (0.1%), while the Nasdaq composite slipped 0.3%. Despite the quiet finish, the S&P 500 achieved its first winning month in four and its strongest performance since November.

For ETF investors tracking major indices, this month's performance underscored a fundamental truth: markets can deliver positive returns even amid significant uncertainty. The key lies in maintaining disciplined approaches that don't rely on predicting short-term volatility.

The Tariff Rollercoaster: A Case Study in Policy Uncertainty

The week's most dominant theme centered on President Trump's on-and-off tariff policies, creating a perfect example of how external factors can create both challenges and extreme opportunities for systematic investors.

Early in the week, hopes rose that the worst tariff concerns had passed after Trump paused tariffs on both China and the European Union. A U.S. court then blocked many of Trump's sweeping tariffs on Wednesday, sending markets higher. However, Friday morning brought fresh uncertainty when Trump accused China of cheating, blatantly and deliberately breaking their agreement. The president declared on Truth Social: "So much for being Mr. NICE GUY!"

This tariff uncertainty directly impacted individual companies and sectors in ways that traditional asset allocation couldn't address, but Micro-Rebalancing flourishes. Gap, despite reporting stronger-than-expected profit and revenue, fell 20.2% after warning that tariffs could add up to $300 million to its costs this fiscal year. Meanwhile, companies with different exposure profiles moved independently of these concerns.

Corporate Earnings: Mixed Signals Across Sectors

The earnings landscape revealed the kind of company-specific movements that make individual position management increasingly important. Ulta Beauty rose 11.8% after reporting stronger sales and profit than forecast, while Costco climbed 3.1% on solid quarterly results. Red Robin Gourmet Burger soared 62.9% after reporting an unexpected profit.

In the technology sector, Nvidia fell 2.9% despite topping profit expectations, becoming the single heaviest weight on the S&P 500 for the day. This divergence between fundamental performance and stock price reaction illustrates why mechanical, rules-based approaches to position management can be more effective than trying to predict market reactions to news.

The New Tax Weapon: Section 899's Global Implications

Perhaps the week's most significant long-term development was the passage of the "One Big Beautiful Bill Act" through the House of Representatives, featuring Section 899 – what analysts are calling a potential "weaponization of US capital markets."

This provision targets entities from "discriminatory foreign countries" by increasing taxes on U.S. income by 5 percentage points annually, potentially reaching 20%. It will be used in response against the nations that Trump claims unfairly tax American citizens.

Unsurprisingly, Deutsche Bank's George Saravelos protested, threatening this could "transform a trade war into a capital war," with significant implications for foreign investment in U.S. assets.

What Is Section 899 of the One Big Beautiful Bill (OBBB)?

Section 899 is one of the most assertive provisions in the 2025 U.S. tax reform legislation known as the One Big Beautiful Bill (OBBB). Its goal? To push back hard against foreign tax regimes that unfairly target U.S. companies, especially tech giants and multinational corporations.

The law gives the U.S. Treasury broad authority to retaliate against countries that impose discriminatory taxes on American firms. These foreign levies include things like the OECD’s Undertaxed Profits Rule (UTPR), Digital Services Taxes (DSTs), and other extraterritorial or “anti-U.S.” tax mechanisms.

Here’s how Section 899 works:

• It imposes additional U.S. taxes: Starting at 5% and increasing up to 20%, on income earned by residents or companies from countries that engage in such practices.

• These surcharges apply to things like U.S.-source dividends, interest, royalties, and even branch profits.

• Tax treaties don’t override it: Meaning, treaty protections can be swept aside if your home country crosses the line.

• It even expands the reach of the BEAT (Base Erosion and Anti-Abuse Tax) to hit foreign-owned U.S. entities that might otherwise be exempt.

In short: Section 899 sends a clear message: If you tax U.S. businesses unfairly, we’ll hit your companies harder here in return.

For foreign investors, it’s a potential tax minefield. For U.S. companies, it’s a bold move to level the playing field. And for global tax policy, it’s a shot across the bow.

For American equity and ETF investors, this development highlights the importance of understanding how policy changes can affect the underlying mechanics of market participation. While individual investors may not face direct impact, the broader effects on capital flows and market structure could influence the behavior of major ETFs like SPY stock, QQQ stock, and VOO.

China's Manufacturing Data: Global Interconnections

China's Purchasing Managers Index rose from 49.0 in April to 49.5 in May, still indicating contraction but showing improvement. The slight recovery coincided with the U.S.-China deal that cut Trump's tariffs from 145% to 30% for 90 days, though significant uncertainty remains about long-term trade relationships.

This data reinforces how global economic conditions can create ripple effects across U.S. markets, affecting everything from individual technology stocks to broad market ETFs. The interconnected nature of modern markets means that systematic approaches to position management must account for these external influences without trying to predict their specific outcomes.

Bond Market Signals: Inflation and Fed Policy

Treasury yields eased during the week after inflation data came in slightly lower than expected, with the 10-year Treasury dropping to 4.39% from 4.43%. Consumer sentiment also improved in May, particularly after the tariff pause, though consumers remained "quite worried about the future."

The Federal Reserve's cautious stance – maintaining steady rates while monitoring tariff impacts on inflation – creates an environment where traditional correlations between asset classes may not hold. This underscores the value of managing individual positions based on their own price action rather than trying to predict broader policy outcomes.

Lessons for Modern Portfolio Management

This week's events offer several key insights for ETF investors and anyone managing individual positions:

Policy Uncertainty is Constant: From tariffs to tax policy, external factors will always create market volatility. Successful investing requires systems that can operate effectively regardless of the policy environment.

Company-Specific Performance Varies Widely: Even within the same sector, individual companies can have dramatically different responses to the same news. This variation creates opportunities for those who can manage positions systematically rather than relying on broad market predictions.

Global Interconnections Matter: Events in China, policy changes affecting foreign investors, and international trade relationships all influence U.S. markets in ways that aren't always predictable but are always present.

Traditional Correlations Break Down: When policy uncertainty dominates, the normal relationships between different asset classes can become unreliable, making individual position management more important than ever.

The Modern Advantage: Mechanical Precision in Uncertain Times

The week's volatility and uncertainty highlight why modern investment management has evolved beyond traditional quarterly rebalancing and broad asset allocation. When Gap can fall 20% despite good earnings due to tariff concerns, while Red Robin can surge 63% on an earnings beat, the ability to manage individual positions with precision becomes crucial.

Today's zero-commission platforms and fractional share trading enable approaches that were impossible just a few years ago. Rather than being trapped by the limitations of traditional portfolio management, investors can now implement systematic, rules-based strategies that respond to actual price movements rather than trying to predict policy outcomes or earnings reactions.

Looking Forward: Systematic Approaches in Volatile Markets

As we move into June, several factors will likely continue influencing markets: the ongoing tariff negotiations, the progress of Section 899 through the Senate, Federal Reserve policy decisions, and continued earnings reports. Rather than trying to predict how these factors will interact, successful investors will focus on systematic approaches that can adapt to whatever conditions emerge.

The week's events serve as a reminder that in an environment of constant change and uncertainty, the most reliable approach is often the most mechanical one. By focusing on what can be measured and managed – individual position performance relative to predetermined targets – investors can build portfolios that thrive regardless of the external noise.

For those managing positions in major ETFs like SPY stock or QQQ stock, or building diversified portfolios of individual positions, the lesson is clear: systematic, disciplined approaches that respond to actual market behavior tend to outperform strategies based on predicting unpredictable events.

The market's ability to deliver positive returns even amid significant uncertainty proves that with the right approach, volatility becomes an opportunity rather than an obstacle.