Trade tensions intensified under Trump's presidency, leading to a significant stock market drop. However, the market managed to recuperate all its losses post the trade conflict's escalation.
Stock Market's Wild Ride: From Doomsday to Rebound
The U.S. stock market played a roller coaster game recently, zooming back to its April 2nd level - the day President Donald Trump announced a jaw-dropping set of tariffs sending Wall Street into a tailspin. Here's a rundown of the market's incredible journey!
The Plunge
After announcing the tariffs on April 2, Trump left the financial world reeling. The new tariffs were alarmingly stern, causing fears of an impending recession as the president aimed to reshape the world economy. Within just four days, the S&P 500 plummeted approximately 12%, and the Dow Jones Industrial Average shed about 4,600 points, equating to a nearly 11% nosedive.
The Reverse
Fast-forward to April 16, with a little help from a 90-day pause for most of the tariffs (except those against China), the S&P 500 rallied a whopping 1.5% for a ninth straight gain, bringing it back to the April 2nd level. It's important to note that the market, at heart of many 401(k) accounts, is still more than 7% below its record high set earlier this year. With uncertainty remaining high about what Trump's tariffs will ultimately do to the economy, stocks are prone to fall again.
What Happened In Between?
The Pause
On April 9, Trump announced a "90-day PAUSE" for most of the tariffs he rolled out a week prior, excluding those against China. The S&P 500 soared an impressive 9.5% for one of its best days ever. Some controversy was attached to the good news, however; Trump tweeted about buying stocks hours before announcing the pause.
De-escalation
The fortnight following the pause wasmarked by constant turns. Trump discussed negotiating tariffs with trading partners while also using tariffs to force companies to move manufacturing to the U.S., aims that seemed contradictory. Despite the unpredictability, investors discovered relief in what the Treasury secretary referred to as de-escalation between the U.S. and China. Market participants also welcomed Trump's moves to ease tariffs on autos as well as smartphones and other electronics.
Bonds and the Buck
The extent of the U.S. stock market's fall after Trump's "Liberation Day" announcement astounded market watchers. Traditionally, presidents backtrack on policies that hurt the Dow Jones. However, it was the panic in other financial markets that might have forced Trump’s hand. Tumbling prices for U.S. government bonds gnawed at worries that the U.S. Treasury market was losing its status as the world's safest place to keep cash. The value of the U.S. dollar also sank in another sign of diminishing faith in the United States as a safe haven for investors. Trump himself acknowledged observing how bond investors were "getting a little queasy" before he paused his tariffs.
The Economy
Surveys of consumers revealed declining confidence, mostly due to the uncertainty generated by the Trump trade policy. But what investors call "hard data," like employment numbers, indicated the economy remained robust. By April's end, when the government stated that employers had added 177,000 jobs, the hard numbers appeared to have an advantage over weak sentiment.
The Fed
The Federal Reserve decreased rates three times at the end of 2024, but then enforced a halt of its own by keeping rates steady, in part to evaluate the impact of the Trump trade policy. The strong jobs report seemed to provide the Fed enough clarity to keep rates as they are for now – despite Trump constantly calling for cuts – but the market remains optimistic for three cuts before the end of the year.
Profits Galore
Through all the market's turbulence, U.S. companies have managed to continue delivering incredible profit reports for the start of the year, surpassing analysts' expectations. Stock prices generally follow profits over the long run, providing the market a notable boost. Three out of every four companies in the S&P 500 have beaten analysts' expectations for profits in recent weeks, including such market heavyweights like Microsoft and Meta Platforms. They’re on track to deliver growth of nearly 13% from a year earlier, according to FactSet.
Caveats Galore
Even as companies have handed out fatter profits than expected, many have also sounded alarms, warning they're unsure whether it can continue. CEOs have been lowering or withdrawing their financial forecasts for the year due to the uncertainty surrounding how Trump's tariffs will pan out. United Airlines even made the unusual move of providing two separate forecasts for the year: one if there's a recession, and one if not.
Trump's stops-and-starts approach to tariffs made this the most volatile period for the market since the onset of the pandemic. The pause is in its fourth week, and the administration has yet to announce an agreement with any of U.S. trading partners. Based on recent remarks, Trump appears firmly committed to tariffs; this pause could simply be temporary.
"We've already seen how financial markets will react if the administration moves forward with their initial tariff plan, so unless they take a different approach when the 90-day pause expires in July, we can expect market reaction similar to the first week of April," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
- The U.S. stock market's recovery trek after Trump's tariff announcement has not returned it to its record high, with the S&P 500 still more than 7% below its earlier year peak.
- The government's announcement of added jobs towards the end of April brought some optimism to a robust economy, despite the ongoing uncertainty arising from Trump's trade policy.
- Despite the market's turbulence, influential tech companies such as Microsoft have continued to exceed analyst expectations in terms of profits for the start of the year.
- The future of businesses, including those like United Airlines, remains uncertain due to CEOs lowering or withdrawing their financial forecasts for the year, citing the uncertainty surrounding Trump's tariff strategy.
