Stock market recovers losses following Trump's intensification of trade conflict
In a surprising turn of events, the U.S. stock market bounced back with a vengeance, just weeks after President Trump's abrupt announcement of severely increased tariffs sent the market into a nose-dive. This rollercoaster ride kicked off on Trump's "Liberation Day," when he surprised Wall Street with the steepest tariffs yet on nearly all U.S. trading partners.
In those initial days following the announcement, fears were running high that Trump might cause a recession in his crusade to reshape the global economy. The S&P 500 slumped around 12%, the Dow Jones Industrial Average plummeted by nearly 4,600 points (approximately 11%), and even the index at the heart of most 401(k) accounts sank more than 7% below its 2024 peak.
However, by the end of last week, the S&P 500 surged a staggering 1.5% for the ninth day in a row, pulling itself back up to the level it was at on April 2. Yet, despite this rally, the index still remains below its all-time high set earlier in the year. Market experts can't help but wonder if a slide back down could be looming, considering the uncertainties surrounding Trump's tariffs and their effects on the economy.
The wild ride for U.S. stocks in April 2024 was as unexpected as it was wild. On April 9, Trump took to social media to announce a "90-day PAUSE" for most of the tariffs he introduced a week earlier, with the exception of those against China. This sudden hiatus sent the S&P 500 soaring by an impressive 9.5% — one of its best days ever. However, Even this welcomed news stirred some controversy, as only hours before the pause was announced, Trump had declared, "This is a great time to buy."
Over the following weeks, the market embarked on a rollercoaster ride, as Trump wavered between negotiating tariffs with trading partners and using them to force companies to move manufacturing back to the U.S., two goals that seemed at odds with one another. While the market found some relief in what was referred to as de-escalation between the U.S. and China and Trump's easing of tariffs on goods like autos and electronics, investors still grappled with uncertainty about the tariffs' ultimate impact on the economy.
Some market watchers were shocked by the severity of the stock market's initial fall following Trump's proclamation of tougher tariffs. They had expected the president, who repeatedly boasted about the Dow's performance during his first term, to backtrack on policies that hurt the Dow Jones Industrial Average. However, it was the fears rippling through other financial markets that may have ultimately compelled Trump's hand. The market turbulence led to tumbling prices for U.S. government bonds and a drop in the value of the U.S. dollar, both concerning signs that the U.S. Treasury market was no longer considered the world's safest place to stash cash.
In light of these developments, economists and investors struggled to reconcile contradictory signals about the economy's health. Surveys reflecting consumer confidence showed a decline, primarily due to the uncertainty sparked by Trump's trade policy. However, "hard data," such as employment numbers, indicated that the economy was still ticking along fairly well. As of the end of April, the job market was strong, with the government reporting that employers added 177,000 new jobs.
The Federal Reserve cut rates three times at the end of 2024 in response to the economic uncertainty created by Trump's trade policy, but then opted for a pause, keeping rates stable to assess the impact of the tariffs. While Trump Repeted his calls for additional cuts, the strong jobs report appeared to give the Federal Reserve the grounds it needed to maintain steady rates for now. Yet, the market remains hopeful for at least three more rate cuts before the end of the year.
Despite the challenges posed by the uncertain trade policy, U.S. companies continued to post profit reports for the first quarter of 2024 that vastly outperformed expectations. This positive trend has provided an encouraging boost to the market. Three out of every four companies in the S&P 500 exceeded analyst predictions for profits in recent weeks, even market heavyweights like Microsoft and Meta Platforms. In fact, they're on track to deliver growth of nearly 13% over the previous year, according to FactSet.
However, despite the solid profit reports, many companies have also expressed doubt whether this momentum can be sustained given the ongoing uncertainty surrounding Trump's tariffs. CEOs across various industries have either lowered or withdrawn their financial forecasts for the year, leaving the market braced for potential turbulence down the line. In a notable move, United Airlines even provided two separate forecasts for the year— one assuming a recession and one if not—reflecting the lingering economic uncertainty.
Trump's indecisive approach to trade policy had turned April 2024 into one of the most volatile periods for the market since the onset of the pandemic. The 90-day pause has been in effect for four weeks now, but Trump has yet to announce any agreements with the U.S.'s trading partners. Given his recent comments, it seems he remains all-in on tariffs, and the pause could prove to be temporary at best.
As Chris Zaccarelli, chief investment officer for Northlight Asset Management, put it, "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 tack in July when the 90-day pause expires, we will see market action similar to the first week of April." In other words, the ride is far from over, so stay buckled up!
- Market experts are still worried about a potential slide down in the stock market, as uncertainties surrounding Trump's tariffs and their effects on the economy persist.
- In response to the economic uncertainty created by Trump's trade policy, the Federal Reserve cut rates three times at the end of 2024, but then opted for a pause, keeping rates stable to assess the impact of the tariffs.
- Despite the solid profit reports from U.S. companies, many CEOs have expressed doubts whether this momentum can be sustained given the ongoing uncertainty surrounding Trump's tariffs, and have either lowered or withdrawn their financial forecasts for the year.
- Trump's indecisive approach to trade policy had turned April 2024 into one of the most volatile periods for the market since the onset of the pandemic, and unless he takes a different tack when the 90-day pause expires, the market can expect more turbulence.
