Stock Market's Wild Ride After Trump's Tariff Announcement
Stock market recovers losses incurred following Trump's intensification of the trade conflict
The U.S. stock market lived through an incredible rollercoaster ride that saw it bouncing back to where it was during the President Donald Trump's "Liberation Day" declaration in just a few weeks. Trump's unexpected announcement of severe tariffs on nearly all U.S. trading partners on April 2 had sent the stocks crashing, leading to a steep decline.
By April 2, Trump had unveiled tariffs so steep that they sparked fears that the president was ready to risk causing a recession in his bid to reshape the global economy. In just four days, the S&P 500 nosedived around 12%, and the Dow Jones Industrial Average plummeted by almost 4,600 points, or roughly 11%.
However, things took a twist when the S&P 500 rallied by 1.5% on the ninth consecutive gain on Friday, pulling it back to where it was on April 2. Despite the index still being over 7% below its all-time high achieved earlier in 2025, the stocks' upward surge has been as unexpected as its downfall. Here's a look at what went down:
The Pause and Controversy
On April 9, Trump surprised the world by declaring a "90-day PAUSE" for most of the tariffs he had announced just a week earlier, except for those against China. The S&P 500 skyrocketed by 9.5%, marking one of its best days ever. Despite the positive news, the announcement came with a bit of controversy, as Trump had made an attempt to encourage buying stocks hours before the announcement on Truth Social.
De-Escalation and Negotiations
The weeks following the pause were filled with twists and turns. Trump spoke about negotiating tariffs with trading partners while also using tariffs to force companies to move manufacturing to the U.S., goals that seemed to contradict each other. Although the market breathed a sigh of relief due to perceived de-escalation between the U.S. and China, investors were also heartened by Trump's decisions to ease tariffs on autos, as well as smartphones and other electronics.
Global Market's Reaction and Responses
The severity of the U.S. stock market's fall after Liberation Day surprised some analysts, who had assumed Trump would rethink policies that hurt the Dow Jones Industrial Average. This is a president, after all, who repeatedly boasted throughout his first term about the Dow's performance. However, it was fear in other financial markets that may have forced Trump's hand. Tumbling prices for U.S. government bonds raised concerns regarding the U.S. Treasury market losing its status as the world's safest place to park cash. Additionally, the value of the U.S. dollar sank, another indication of diminishing investor confidence in the United States as a safe haven. Trump himself admitted he had noticed how bond investors were "getting a little queasy" before he paused his tariffs.
Economic Conundrums
Economists and investors were faced with a conundrum, having to reconcile contradictory signals about the economy. On the one hand, surveys of consumers showed declining confidence, largely due to the uncertainty created by the Trump trade policy. On the other hand, "hard data" such as employment numbers indicated the economy was still holding steady. By April, when the government reported employers added 177,000 jobs during the month, the hard numbers appeared to have the upper hand over weak consumer sentiment.
Federal Reserve's Response
The Federal Reserve cut rates three times at the end of 2024, but then adopted a wait-and-see approach by keeping rates steady, partly to assess the impact of the Trump trade policy. The strong jobs report seemed to provide the Federal Reserve with the necessary clearance to keep rates steady, even though Trump continuously urged for cuts. However, the market is still holding out hope for three additional rate cuts before the end of the year.
Earnings Beat and Profit Warnings
Despite the volatility in the market, U.S. companies continued to deliver financial earnings reports for the beginning of the year that exceeded analysts' expectations. Stock prices generally follow profits over the long term, providing a notable boost to the market. Three out of every four companies in the S&P 500 have exceeded analysts' expectations for earnings in recent weeks, including market giants like Microsoft and Meta Platforms. They're expected to deliver growth of nearly 13% from the previous year, according to FactSet.
Though companies have delivered fatter profits than anticipated, many have also issued cautionary statements regarding the future. CEOs have either reduced or withdrawn their financial forecasts for the year due to uncertainty concerning Trump's tariffs. Even United Airlines took the unusual step of offering two separate forecasts for the year, one if there's a recession and another if there isn't.
Trump's on-again-off-again approach to tariffs has made this the most volatile period for the market since the onset of the pandemic. The pause is now in its fourth week, and the administration has yet to announce any agreements with U.S. trading partners. Based on Trump's recent comments, the administration remains committed to tariffs. As Chris Zaccarelli, chief investment officer for Northlight Asset Management, put it, "We've already seen how financial markets will react if the administration moves forward with their initial tariff plan, so unless they take a different approach in July when the 90-day pause expires, we will see market action similar to the first week of April."
Sources:1. Economic Impact of Trump's 2025 Tariff Proposal: What Do the Numbers Say?2. The Unintended Consequences of Trump's 2025 Tariffs3. The Economic Impact of Trump's 2025 Trade Policies4. The Brink of a Recession: What Trump's 2025 Tariffs Mean for Stocks
- In 2024, the Federal Reserve cut interest rates three times, potentially influenced by the economic uncertainties generated by President Donald Trump's tariff policies.
- The S&P 500 experienced a significant rally in April 2025, a response to Trump's announcement of a 90-day pause on most of the tariffs he previously announced.
- The sudden pause of the tariffs led to a surge in the stock market, with the S&P 500 skyrocketing by 9.5%, marking one of its best days ever.
- The U.S. government reported a strong jobs number in April 2025, with employers adding 177,000 jobs, providing evidence that the economy was still steady despite consumer uncertainty.
- Companies like Microsoft have reported earnings that exceeded analysts' expectations in the beginning of 2025, contributing to a notable boost in the stock market.
- Despite the strong earnings, many companies have issued cautionary statements, reducing or withdrawing their financial forecasts for the year due to uncertainties surrounding Trump's tariffs.
- The administration's commitment to tariffs, as expressed by President Trump, may lead to a similar market volatility that occurred in April 2025 when the initial tariff plan was announced, according to Chris Zaccarelli, chief investment officer for Northlight Asset Management.
