For drivers, a car U-turning on busy roadway is universally viewed as negative. For investors, the recent policy U-turn by the Trump administration on its busy tariff agenda was universally viewed as positive.
As the tariff announcements came fast and furious in early April, the financial markets took another leg down.
During four trading days early in the month (April 3rd – 8th) US large company stocks dropped by 12%.
This downdraft, on top declines registered in the first quarter, brought the cumulative drop in stocks close to a bear market – down 19% from the most recent high on February 19.
Then, President Trump said he’d pause tariffs on dozens of countries for 90 days after coming under intense pressure from business leaders and investors to reverse course.
On April 9, the stock market delivered a 1-day rally of 9% following that announcement.
As of the end of April, here’s how the situation stood with regard to tariffs:
- A 90-day pause on so-called “reciprocal” tariffs (apart from a 10% universal tariff)
- Further tariff exceptions for computers, smartphones and electrical equipment
- Some short-term exclusions from the 25% tariffs on imported vehicles and auto parts under consideration
- Conversely, the Administration has ratchetted up tariffs on China to 145%
- New levies on imported pharmaceuticals, lumber and semiconductors are expected in coming months
Beijing’s countermove was to raise tariffs on all US goods imported into China to 125%.
Financial market participants are now interpreting the situation as less of a global trade war, and more of a tariff showdown between the US and China.
This “less bad” news was enough to allow the stock market to turn back up during the second half of April.
When all was said and done (or, perhaps more aptly put, after all that was said), here’s how things shook out in the financial markets for the full month of April:
Note: Foreign Stocks = MSCI EAFE Index; Tech Stocks = Russel 1000 Technology Index; Bonds = Bloomberg US Aggregate Bond Index; US Large Co = S&P 500 Index; US Small Co = Russell 2000 Index
Year-to-date through April 30, here are returns for the above asset classes:
- Foreign stocks, +12%
- Tech stocks, -10.4%
- Bonds, +3.2%
- US Large Co, -5.1%
- US Small Co, -11.6%
Positive momentum pushed the stock market up further during the first two days in May.
By the close of trading on Friday, May 2, the S&P 500 index of large company US stocks had rallied for nine straight trading sessions and had reclaimed all losses registered in April.
The quick recovery from April’s intense bout of crisis-like volatility indicates that investors seem believe the American economy isn’t about to slide into recession, and that it will take a much bigger shock to push stocks into a bear market.
-RK