It felt like an eternity, but the U.S. stock market only took a few weeks to return to the point where President Donald Trump declared “liberation day.” That day, he surprised Wall Street by announcing sudden tariffs that were far more severe than anyone anticipated, affecting nearly all U.S. trading partners.
The tariffs, revealed on April 2, sparked fears that Trump was unconcerned about causing a recession amid efforts to strengthen the global economy. Within just four days, the S&P 500 had dropped around 12%, while the Dow Jones Industrial Average lost approximately 4,600 points, about 11% of its value.
But fast forward to this Friday, the S&P 500 had gained 1.5%, marking its ninth consecutive increase, bringing it back to its level from April 2.
Still, the index, a key part of many 401(k) accounts, remains over 7% below the all-time high reached earlier this year. There’s a chance stocks could drop again due to lingering uncertainty about the long-term effects of Trump’s tariffs on the economy. Nevertheless, let’s explore what transpired:
Pause
On April 9, Trump took to social media to announce a “90-day suspension” of most tariffs he had announced just a week earlier, with the exception of those directed at China. The S&P 500 surged 9.5% that day, one of its best days ever. However, even this positive news was met with some contention. Hours before the suspension was announced, Trump had tweeted, “This is the best time to buy.”
Escalation
The weeks following the suspension were quite tumultuous. Trump discussed negotiating tariffs with trade partners, yet he was also using tariffs to encourage businesses to relocate manufacturing to the U.S., creating a conflict in objectives. Market relief came when the U.S. Treasury Secretary reported progress in negotiations with China, and investors welcomed Trump’s easing of automobile tariffs on smartphones and other electronics.
Bonds and Money
The sharp decline in the U.S. stock market after the announcement came as a surprise to some analysts, who expected Trump’s policies to be less damaging to the Dow. After all, this is the same president who often boasted about the Dow’s performance during his first term.
However, concerns in other financial markets forced Trump’s hand. Falling U.S. government bond prices raised alarms that the U.S. Treasury was losing its status as the world’s safest cash haven. The value of the U.S. dollar fell, signaling diminishing confidence in the U.S. as a secure investment.
Trump acknowledged that he sensed bond investors were “a bit uneasy” before the tariffs were suspended.
Economy
Economists and investors struggled to reconcile conflicting economic indicators. Consumer surveys reflected a drop in confidence, largely due to the unpredictability stemming from Trump’s trade policies. Yet, the so-called “hard data,” like employment statistics, suggested the economy was still holding steady. On Friday, the government reported that employers added 177,000 jobs in April, indicating that solid numbers might outweigh the prevailing negative sentiment.
FRB
The Federal Reserve cut its rates three times at the end of 2024, but then paused to gauge the effects of Trump’s trade policies. The robust employment report seems to give the Fed a reason to maintain current rates, despite Trump’s continuous calls for cuts, though the market is still anticipating three reductions by year-end.
Many Benefits
Amid all the market turbulence, U.S. companies have been rolling out profit reports that surpassed analysts’ expectations. Typically, stock prices follow profit trends over time, providing a notable boost to the market.
Recently, three out of four S&P 500 companies beat analysts’ profit forecasts, including major players like Microsoft and Meta Platforms. According to FactSet, these companies are on track for nearly 13% year-over-year growth.
Surely
Despite these greater-than-expected profits, many are cautioning against overconfidence. Several CEOs have lowered or even withdrawn their financial forecasts for the year due to the uncertainty surrounding Trump’s tariffs.
For instance, United Airlines has made the unusual decision to provide two separate forecasts for the year: one assuming a recession and another without that assumption.
Trump’s unpredictable approach to tariffs has created the most uncertain market conditions since the onset of the pandemic. The suspension of tariffs is now in its fourth week with no agreement reached with U.S. trading partners. Based on his latest remarks, Trump remains steadfast in his tariff stance, so this suspension could ultimately be temporary.
“We already saw how the financial markets reacted when the administration moved ahead with its original tariff plans. So, unless there’s a shift in July when the 90-day suspension ends, we can expect similar market behavior as we saw in early April.”
