Although it might seem like an eternity, it took just several weeks for the U.S. equity market to recover fully from the shock it endured on what is now referred to as ‘Liberation Day’, the day when President Donald Trump introduced tariffs that far exceeded Wall Street’s expectations on nearly all the U.S. trade allies. Unveiled on the 2nd of April, the gravity of these tariffs ignited apprehension that Trump was heedless of inducing an economic downturn in his quest to reconfigure the world economy. A mere four days later, the S&P 500 had dropped roughly 12%, resulting in a staggering loss of approximately 4,600 points or about 11% on the Dow Jones Industrial Average.
However, on the preceding Friday, the S&P 500 garnered a ninth consecutive increase of 1.5% and resumed its April 2nd level. Nonetheless, the primary index of numerous 401(k) portfolios is still lagging more than 7% behind its record high noted earlier in the year. The instability around Trump’s tariffs and potential impacts on the economy suggests that share prices could plunge again.
The bull run of U.S. shares, capturing everyone by surprise, was as striking and abrupt as its initial decline. On April 9th, President Trump proclaimed a ’90-day PAUSE’ on the majority of the tariffs he had previously announced, with China being an exception. This surprising move skyrocketed the S&P 500 by 9.5% marking one of its most successful days.
The time following this pause resembled an emotional rollercoaster. President Trump discussed negotiating tariffs with trade allies while concurrently advocating for tariffs that compelled companies to relocate their manufacturing bases to U.S. soil, presenting a contradiction. However, the market breathed a sigh of relief upon hearing the Treasury Secretary’s hint on possible de-escalation between the U.S. and China.
Investors also reacted favorably to Trump’s decision to soften tariffs on vehicles as well as other electronic devices like smartphones. The severity of the U.S. stock market’s crash post-Liberation Day caught many market analysts off guard. Many had predicted Trump would retreat from any policies causing damage to the Dow Jones index. Yet, perhaps triggered by the precarious movements in other financial markets, that did not occur.
The sharp fall in U.S. government bonds raised concerns that the revered status of the U.S. Treasury market as the world’s safest haven might be under threat. Consequently, faith in the United States weakened as a safe choice for investors, as illustrated by the declining value of the U.S. dollar.
As for the economy’s status, economists and investors found themselves caught in a dilemma tracing contradictory signals. Consumer surveys showed a drop in confidence largely attributed to the inconsistencies caused by Trump’s trade policies. In contrast, so-called ‘hard data’, which included employment figures, suggested that the economy was maintaining its ground.
As the year 2024 drew to a close, the Federal Reserve sort to navigate through these rough waters by cutting rates thrice and subsequently halting any further changes. This was partially to gauge the impact of Trump’s trade protocol. The robust job report seemed to provide the Federal Reserve with enough reassurance to maintain the existing rates, regardless of Trump’s repeated calls for cuts.
Despite the turbulence in the market, U.S. firms have consistently surpassed analyst’s profit expectations at the start of the year. This encouraging trend has provided a significant boost to the market considering that share prices usually reflect profits in the long run. A noteworthy 75% of companies in the S&P 500 index have outperformed profit expectations in recent weeks, setting the pace for a growth rate of approximately 13% compared to the previous year.
However, despite exceeding projected profits, many companies voiced concerns regarding the sustainability of their financial performance. Amidst all the uncertainty surrounding the tariffs’ final outcome, numerous CEOs have either downscaled or pulled back their financial outlook for the year. In a rather unconventional move, United Airlines introduced two separate financial forecasts for the year, one for a recession scenario and another for a non-recession scenario.
The volatile swings brought on by the unpredictable nature of Trump’s tariffs made this period the most turbulent for the market since the pandemic began. As the tariff pause enters its fourth week, the administration is yet to finalize an agreement with any U.S. trade partners. Based on recent comments, it seems Trump is not backing down on tariffs, indicating the pause could be temporary.
As one top investment officer from Northlight Asset Management commented, ‘We’ve already taken a hit on how financial markets will respond if the administration proceeds with their preliminary tariff plan. Unless they choose to follow a different path when the 90-day pause ends in July, we’ll likely witness market reactions akin to those experienced in the initial week of April.’
The post Trump’s Tariffs: Market Recovery Following Dramatic Fall appeared first on Real News Now.
About Author
