In a surprisingly swift turn of events, the U.S. stock market managed to rebound to levels reminiscent of President Donald Trump’s controversial “Liberation Day.” This pivotal day, marked by the announcement of steep tariffs on nearly all U.S. trading partners, sent shockwaves through Wall Street. The tariffs, unveiled on April 2, raised concerns that Trump was willing to risk an economic recession in pursuit of reshaping the global economy. In just four days following the announcement, the S&P 500 plummeted by approximately 12%, while the Dow Jones Industrial Average lost nearly 4,600 points—an 11% decline.
Fast forward to this past Friday, the S&P 500 experienced a significant rally, gaining 1.5% for its ninth consecutive day of growth, ultimately returning to its pre-tariff announcement levels from April 2. However, it is essential to note that despite this resurgence, the index remains over 7% below its all-time high achieved earlier this year. As uncertainty looms regarding the long-term implications of Trump’s tariffs on the economy, stock prices may once again be at risk of decline.
On April 9, President Trump took to social media to announce a “90-day PAUSE” on most of the tariffs he had previously imposed, with the exception of those targeting China. This announcement resulted in a remarkable 9.5% surge in the S&P 500, marking one of its best trading days in history. However, the timing of the announcement sparked controversy; just hours prior, Trump had declared on Truth Social that “this is a great time to buy,” raising eyebrows among investors.
The weeks following the tariff pause were nothing short of a roller coaster ride for the markets. Trump’s conflicting rhetoric regarding negotiating tariffs with trading partners, while simultaneously using them to encourage domestic manufacturing, created an air of confusion. Nevertheless, the market found some solace in what the Treasury Secretary described as a period of de-escalation between the U.S. and China. Investors welcomed Trump’s decisions to ease tariffs on automobiles, smartphones, and other electronics, which contributed positively to market sentiment.
The severity of the stock market’s decline after “Liberation Day” took many analysts by surprise, as they had anticipated Trump would retract policies that adversely affected the Dow Jones Industrial Average. Historically, Trump has boasted about the performance of the Dow during his presidency. However, fears in other financial markets, particularly concerning the plummeting prices of U.S. government bonds, prompted a shift in strategy. Concerns about the U.S. Treasury market losing its status as a safe haven for investors led to a decrease in the value of the U.S. dollar.
Economists and investors found themselves navigating mixed signals regarding the state of the economy. Consumer surveys indicated a decline in confidence, largely stemming from the uncertainty surrounding Trump’s trade policies. In contrast, “hard data,” such as employment figures, suggested the economy remained relatively stable. For instance, the government reported that employers added 177,000 jobs in April, providing evidence that the economy was still on solid footing.
The Federal Reserve took proactive measures by cutting interest rates three times at the end of 2024. However, it subsequently decided to pause further cuts to assess the ongoing impact of Trump’s trade policies. The robust jobs report seemed to give the Fed the green light to maintain current rates, despite Trump’s continued calls for reductions. Nonetheless, the market is anticipating three additional rate cuts before the year concludes.
Amidst the market's volatility, U.S. companies have consistently reported profits that surpass analysts’ expectations. Historical trends indicate that stock prices tend to follow corporate profits in the long run, providing a much-needed boost to the market. Notably, three out of every four companies in the S&P 500 have exceeded profit expectations in recent weeks, including major players like Microsoft and Meta Platforms. According to FactSet, these companies are projected to achieve nearly 13% growth compared to the previous year.
Despite the positive earnings reports, many companies have expressed concerns about the sustainability of their financial performance. Several CEOs have either lowered or withdrawn their forecasts due to the ongoing uncertainty surrounding Trump’s tariffs. In a rare move, United Airlines provided two separate financial forecasts: one assuming a recession and one assuming no downturn. The unpredictable nature of Trump’s tariff policies has led to a period of heightened volatility in the markets, reminiscent of the early pandemic days.
As the current pause on tariffs enters its fourth week, the administration has yet to reach any agreements with the U.S.’s trading partners. Given Trump’s recent comments, it appears he remains committed to his tariff strategy, raising concerns that the pause may only serve as a temporary respite. According to Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, unless the administration alters its approach by July when the 90-day pause concludes, the market may experience a repeat of the tumultuous reactions seen in early April.
