The U.S. stock market has made a quick return to the point known as President Donald Trump’s “liberation day,” which was marked by his surprising announcement of higher tariffs on nearly all U.S. trading partners. These tariffs, unveiled on April 2, triggered significant concerns that Trump was prioritizing them over the potential recession following his attempts to stabilize the global economy. Within just four days, the S&P 500 plummeted by around 12%, while the Dow Jones Industrial Average lost about 4,600 points, roughly 11%.
As of last Friday, the S&P 500 had rebounded by 1.5%, marking its ninth consecutive gain and returning to levels seen on April 2. However, it’s worth noting that the index is still over 7% below its all-time peak reached earlier this year, leaving room for further declines amid ongoing uncertainty regarding the potential economic impact of the tariffs. So, what led to this comeback?
Pause
On April 9, Trump announced a “90-day suspension” on most tariffs, with the exception of those on China. This announcement resulted in a remarkable one-day surge of 9.5% in the S&P 500, one of its best performances ever. Yet, even this positive news had its complexities. Just before announcing the suspension, Trump stated on social media, “This is the best time to buy.”
Escalation
In the weeks following this pause, the market experienced ups and downs. Trump discussed negotiating tariffs while simultaneously pushing for domestic manufacturing, which raised questions about conflicting objectives. The market found some relief amid what the U.S. Treasury Secretary termed as easing tensions between the U.S. and China. Investors reacted positively to Trump’s easing of tariffs on automobiles, smartphones, and other electronics.
Bonds and money
The swift decline in the stock market surprised many observers, who had expected Trump’s policies to hurt the Dow. After all, he often touted stock performance during his presidency. However, pressures from the bond market prompted a shift. Falling U.S. government bond prices raised concerns that the Treasury was losing its status as the safest place for investments. Additionally, the value of the U.S. dollar decreased, suggesting diminishing confidence in the U.S. as a secure investment haven.
Trump himself remarked that he could sense bond investors “feeling a bit sick” before he decided to suspend the tariffs.
Economy
Economists and investors found themselves navigating mixed economic signals. Consumer confidence dropped, largely due to the uncertainty stemming from Trump’s trade policies. Yet, employment data indicated a robust economy, with employers adding 177,000 jobs in April, which seemed to counterbalance the negative sentiment.
FRB
The Federal Reserve reduced interest rates three times by the end of 2024 but then opted to maintain stable rates to assess the effects of Trump’s trade strategies. The positive job report gave the Fed reason to hold rates steady, despite Trump’s ongoing calls for cuts. Still, the market anticipates three rate cuts by the year’s end.
Many benefits
Amid the market fluctuations, U.S. companies have continued to report strong profits this year, surpassing analysts’ expectations. Stock prices typically follow profit trends, providing a noticeable lift to the market. Three out of four S&P 500 companies have exceeded profit expectations, including major players like Microsoft and Meta Platforms, with a projected growth rate of nearly 13% year-over-year.
Surely
Despite better-than-expected earnings, many companies express uncertainty about future performance. Some CEOs have lowered or withdrawn their financial forecasts due to the ambiguity surrounding Trump’s tariffs. For instance, United Airlines has issued two different forecasts: one assuming a recession and the other if economic conditions improve.
Trump’s inconsistent approach to tariffs has resulted in significant unpredictability in the market since the pandemic began. As the suspension approaches its fourth week, there’s still no deal in sight with U.S. trading partners. Based on his recent assertions, Trump seems committed to the original tariff plans, could mean the suspension is temporary.
“We’ve seen how markets react if the administration reverts to its initial tariff proposals. So, unless we see a different approach by July, when the 90-day suspension comes up, we might experience similar market behavior to early April.”
Initially published: May 4th, 2025 8:40am EDT
