The U.S. stock market has experienced a rapid comeback, returning to levels observed prior to President Donald Trump’s unexpected announcement of steep tariffs on numerous U.S. trading partners. Announced on April 2, these tariffs were harsher than anticipated and sparked fears that Trump was disregarding the potential economic downturn that could result from his attempt to reshape global trade.
In the wake of the announcement, the S&P 500 plummeted by approximately 12% within four days, while the Dow Jones Industrial Average fell nearly 4,600 points, equating to roughly an 11% drop. However, this past Friday saw the S&P 500 enjoying a 1.5% rally, marking its ninth consecutive gain, leading it back to its standing on April 2. Nonetheless, the index, integral to numerous 401(k) accounts, remains over 7% below its all-time highs reached earlier in the year, with continued uncertainty over what Trump’s tariffs might ultimately mean for the economy.
A significant pause occurred on April 9 when Trump took to social media to announce a “90-day PAUSE” on most tariffs announced a week earlier, excluding those against China. This news sent the S&P 500 soaring to a 9.5% one-day gain, one of its best in history. Still, this good news was not without its own drama, as Trump suggested just before the pause that it was an excellent time to invest.
Following the pause, the market experienced further unpredictability as Trump shifted towards negotiating with trading partners on tariffs while simultaneously exerting pressure on companies to relocate production to the U.S. Despite the seemingly contradictory aims, the market found solace in the perceived de-escalation between the U.S. and China, with investors reacting positively to easing tariffs on products such as automobiles, smartphones, and electronics.
The unexpected steep declines in the stock market surprised many observers who assumed Trump might retract policies detrimental to the Dow Jones Industrial Average, especially since he often touted its performance during his first term. Yet, fears lingered in other financial areas, prompting intervention from the administration. Tanking prices of U.S. government bonds sparked concerns over the Treasury market’s reputation as the world’s ultimate safe harbor for cash. Concurrently, a drop in the U.S. dollar further signaled eroding trust in the U.S. as a secure investment destination.
Reports indicated that even Trump noticed increasing unease among bond investors ahead of his decision to pause the tariffs amid these broader concerns.
Meanwhile, economists and investors had to piece together conflicting indications regarding the state of the economy. Consumer confidence dampened largely because of the uncertainty introduced by Trump’s trade policies, even as “hard data” like employment numbers suggested the economy remained relatively stable. As government figures reported employers adding 177,000 jobs in April, the substantive data appeared more favorable than the prevailing sentiment.
Amid these developments, the Federal Reserve implemented three rate cuts by the end of 2024, followed by a pause to gauge the impacts of the trade policies. With strong employment reports in hand, the Fed seems poised to maintain current rates despite Trump’s calls for further cuts, though market speculation suggests three additional cuts may occur before year’s end.
Throughout these upheavals, U.S. companies have continually posted robust profit reports that surpass analysts’ expectations, offering substantial market uplift. Currently, about 75% of S&P 500 constituents have exceeded profit forecasts, including prominent firms such as Microsoft and Meta Platforms, projecting close to 13% growth from the previous year according to FactSet.
Yet, even as profits outstrip predictions, companies caution about sustaining such performance amid uncertainty over the eventual outcomes of Trump’s tariff strategy. For instance, United Airlines has adopted the rare approach of issuing dual forecasts for the year contingent on a potential recession.
The intermittent approach to trade policies has rendered this the most volatile market period since the beginning of the pandemic. With the tariff pause entering its fourth week and no new trade accords in place, speculation continues on Trump’s unwavering focus on tariffs. Consequently, the pause might prove temporary.
“With previous market responses as a guide, unless the administration alters its course by July when the 90-day pause expires, markets may replicate the volatility experienced during early April,” remarked Chris Zaccarelli, chief investment officer for Northlight Asset Management.