Political and legislative challenges faded in the rearview mirror as the S&P 500 taxis through a remarkably turbulent environment. Investors are responding ahead of further escalation in U.S.-China trade relations. In a move aimed at easing market tensions, the Trump administration announced a temporary exemption for smartphones, computers, and other electronics from tariffs on Chinese imports. This decision has led to renewed hope among investors, especially in tech industries.
According to trading data, the S&P 500 futures contract has increased by 1.3%. That’s on top of the 1.9% gain made on Friday and signals a strong opening in the green. In the same vein, Nasdaq 100 futures are pointing to a 1.7% positive open but volatility in the market continues to be the key fear factor. On Friday, the S&P 500 closed 1.81% above where it started the day. This increase marks a significant rebound from an intense market sell-off earlier this week, though it is still short of Wednesday’s highs.
The Volatile Landscape of the S&P 500
Volatility has certainly been a defining characteristic of the S&P 500, as this massive index has tried to adapt to an ever-changing market landscape. The index posted a stellar comeback of 5.70% last week, recovering from a local bottom of 4,835.04.
Despite this recovery, the market remains fragile. Support now looks to be in the 5,000-5,100 range and resistance around 5,480. The ups and downs reflect the continuing tug of war over mixed macroeconomic signals and continued geopolitical threats.
The Cboe Volatility Index (VIX), otherwise known as the market’s “fear gauge,” gives us one of the clearest indicators of investor sentiment. Historically, a falling VIX indicates that investors are experiencing reducing levels of fear. A rising VIX is a harbinger of stormy days ahead in the stock market. Recent spikes in the VIX are indicative of increased panic as traders respond to day-by-day bad news.
Tech Sector Gains Amid Tariff Exemptions
This reprieve from high punitive tariffs has injected certainty and much-needed encouragement into the emerging tech sector. This industry’s supply chain is very much dependent on imports from China. Large technology firms, such as Apple, are bound to breathe a sigh of relief with the administration’s announcement. This decision greatly relieves the financial pressure that the tariffs have imposed.
Last Friday, the Nasdaq 100 was up almost 2% – a strong recovery that well-paces the up-Naz to the new bull market definition we placed on it. This momentum is expected to carry into today’s trading session as tech majors prepare for a potentially favorable market environment.
Goldman Sachs helped to stoke that investor optimism with a positive report of its own earnings released this morning. The bank’s stock jumped more than 1% in pre-market trading, though the bank’s stock has since retracted from earlier highs. These movements highlight the ambivalence being felt in today’s trading.
Currency Markets React to Economic Developments
Just as stock markets have started to show some recovery, so too currency markets have been reacting to the recent, still rapidly evolving, economic landscape. The U.S. Dollar is surging for a second consecutive day. Consequently, the EUR/USD exchange rate has moved back down into the 1.1300 area. This move follows two straight days of Euro appreciation against the Dollar.
This interaction between the stock and currency markets is a reminder of the larger economic picture that shapes investor behavior. These oscillations are signs that although some industries have begun to experience recoveries, other sectors have a longer road ahead.
“Nobody is off the hook.” – US President Donald Trump