At the financial markets went absolutely wild this week. Geopolitical developments and the exceptional performance of mega-cap technology stocks fueled this extraordinary gain. The broad S&P 500 index jumped 3.3% for its largest one-day increase in more than a month. For context, during that same time period, the Nasdaq skyrocketed over 4%! As the gains continued to skyrocket, news articles were reassuringly documenting how ceasefires were holding up across the world on every front. Notable was a major deal between the U.S. and China to reduce tariffs.
The deal reached by the two nations includes a 90-day decrease in tariff rates. The U.S. will cut overall tariffs on Chinese goods by 145% and China will cut its tariffs on U.S. goods by 125%, down to 10%. This announcement has underpinned a huge improvement in investor confidence. Market participants were ebullient at the prospect, undoubtedly revitalized by the promise of a thaw in trade relations and greater economic stability.
Major Index Performance
The S&P 500 screamed higher and broke through its 200-day moving average. It is still down only 5.6% from February’s peak. That confidence from investors is the fuel to this bullish run. This strategic turn follows a time of deep uncertainty marked by contradictory economic signals and great geopolitical strife. The breathtaking comeback in the mega-cap heavy Nasdaq 100 continues to leave even hardened market investors slack jawed, rising nearly 26% from their April 7 bottom.
Private equity investors have been focused on systematic macro books, investors entering at the top with $450 billion in global equities. Current exposure, on the other hand, has plummeted to about $185 billion. How are fund managers reacting to the uncertainty? Fund managers are playing it safe. They are upending their portfolios in real-time to focus on new market realities.
As we mentioned above, the recent return of mega-cap stocks has been a crucial ingredient in this powerful market rally. As a result, Tesla (TSLA) reclaimed its $1 trillion market capitalization along the way, signaling deep investor confidence in the company’s long-term growth potential. In addition, as these mega-cap companies keep bringing in billions, liquidity levels are pretty high.
Impact on Commodities and Currencies
The optimism spread beyond the equities markets too, affecting commodities and currencies. Energy crude oil prices rose 2%, buoyed by hopes of a stronger global economy. In part, as traders started expecting higher demand for energy resources, this increase reflected a more stable overall market.
In the global currency markets US Dollar Index (DXY) exploded by 1.35%. Traders were out to aggressively liquidate their long positions in euro and yen. The dollar’s recent strength indicates a change in the market landscape. This shift is largely due to reduced tariff concerns coupled with robust bullish sentiment towards U.S. stocks in general.
Spot Bitcoin exchange-traded funds (ETFs) set an incredible record, crossing record lifetime flows of $40.33 billion. This move marks another step in an increasing acceptance of cryptocurrencies into the traditional financial space. Beyond the dollars, it signals a trend in investor preferences toward more alternative assets.
Future Outlook
Many market analysts are keeping a sharp eye on the effects of removing those tariffs. They are concerned about how these changes will impact economic growth at home and abroad. The reduction of tariffs is expected to stimulate trade between the U.S. and China, potentially leading to increased economic activity and job creation in both countries.
Yields on U.S. Treasuries are climbing sharply along the whole curve. In response, traders have moved forward their expectations for Federal Reserve interest rate cuts. This change could have a substantial impact on how future investments are made, as investors of all types look to identify new opportunities across asset classes.