In January, US President Donald Trump unexpectedly suspended proposed steep tariffs on imports from most affected countries. That was the decision that unleashed the epic bull market in US stocks. The move aims to ease economic tensions while leaving tariffs on goods from China intact, which continue to pose a challenge for the economy. This announcement has lifted the spirit of optimism among investors, causing double-digit gains in all major US indices.
Coming soon after the news of Trump’s announcement, the S&P 500 enjoyed its single best one-day bounce since 2008, climbing 9.5%. The Dow Jones Industrial Average closed the day up more than 7.8%, with the Nasdaq surging over 12%. The last week’s surge is more than just a strong market reaction to the possible lessening of trade tensions with Canada, Mexico, and China. Worries about China haven’t entirely vanished.
Despite the positive market response, challenges persist. According to the National Retail Federation, shipments to US ports in May are expected to be down 20% from last year. This decrease is largely because of the existing tariffs. Furthermore, while Trump’s suspension applies broadly, he indicated that he would raise tariffs on goods from China to at least 125% “effective immediately.” This decision underscores his willingness to get tough on trade with China, our main economic competitor.
Trump’s announcement floated the idea of inserting new tariffs on major trade partners, like the European Union. Additionally, the newly imposed 46% tariff on Vietnam—which is considered one of our most critical trade partners—is raising new alarms. By doing so, the President signaled his intention to double down on his support for these key sectors – cars, steel and aluminum. Perhaps most importantly, he’s determined to develop new markets in areas like pharmaceuticals and lumber.
Amid these developments, investors have reacted swiftly. In spite of large corporations, including Nike and Apple, blaming their lack of stock growth on the pandemic—Nike’s share price was up 11%, Apple’s 15%. Taken together, beyond the specifics of these gains there’s rising optimism in the market related to possible trade negotiations and domestic economic recovery.
The canary in the coal mine, the bond market, was already flashing red as investors started to sell off US government bonds en masse. Paul Ashworth commented on the situation, stating, “Although President Donald Trump was able to resist the stock market sell-off, once the bond market began to weaken too, it was only a matter of time before he folded.”
Given all of this volatility and uncertainty, Trump clearly wanted to position himself as the candidate that understood what the market was feeling. He noted, “I saw last night where people were getting a little queasy,” suggesting that he is cognizant of investor apprehensions as negotiations unfold.
In particular, the White House reiterated its support for retreating from elevated tariffs on trade allies that are ready to talk trade. This pragmatic strategic pivot seeks to build conversations and possibly mutual-find agreements that can positively balance trade partnerships.
Investor Bill Ackman, no progressive himself, tweeted his thanks for the administration’s decision, calling it “Thank you on behalf of all Americans.” His remarks reflect a broader sentiment among some investors who view the tariff suspension as a positive step toward economic stability.