Markets Rebound Sharply Amid Tariff Turmoil and Fed Patience

Overview:

Major market indices were up for the week, rebounding after the prior week’s notable slide. The market was extremely volatile, with the VIX climbing above 50 on Tuesday. The S&P intraday Tuesday flirted with bear-market levels 20% below the index’s February all-time high, but did not close in bear territory (recall the Nasdaq hit the bear-market point last week). Then on Wednesday, the index traded through a 533-point range during the session on its way to a 9.52% gain.

Big tech was broadly higher this week, but all names remain lower YTD. Other outperformers included semis, software, managed care (higher CY26 Medicare Advantage rates), A&D, machinery, multis, staples retailers, large-cap banks, credit cards, P&C insurers, payments, hotels, cruise lines, ag chemicals, and retail-investor favorites. Laggards included homebuilders (rates), pharma/biotech (tariff threats), energy (crude), apparel, ICE autos/suppliers, and China tech (US delisting headlines).

Treasuries were sharply weaker with the curve steepening; the 10Y and 30Y yields both rose more than 40bp. The dollar accelerated its recent slide, posting its worst week since November 2022; DXY (3.0%). Gold rose 6.9%, setting another all-time high and notching its best week since March 2020. WTI crude was down 0.8%, adding to the prior week’s 10%+ drop after an extremely choppy week of trading.

What happened with tariffs?:

It was a highly volatile week of trade developments that whipsawed the market. Investors exited last week still in a cloud of uncertainty and concern about the evolving tariff situation, and some tentative question about a possible implementation delay was countered by administration officials saying Trump would stay the course.

However, there was a subtle shift in the narrative, with the White House stressing that dozens of countries had reached out looking to negotiate. Then on Wednesday, Trump abruptly announced a 90-day pause for reciprocal tariffs on countries that had not retaliated and had sought negotiated settlements. The market saw a massive rally on these developments.

At the same time, however, the White House raised the tariff rate on China to 125% (later clarified as 145%), citing that country’s retaliation and “lack of respect.” By Friday, China had also raised its tariffs on US imports to 125%, adding it would not retaliate further because US goods are no longer marketable in that country. Meanwhile the EU announced its own 90-day pause on retaliatory efforts to give negotiations an opportunity to bear fruit.

There are still very many moving parts in the trade/tariff narrative, and it seems as if we may only be near the end of the beginning. Trump’s willingness to take a slight off-ramp at a point of rising concern was seen as a positive, keeping the “Trump put” concept alive. Thoughts that Treasury Secretary Bessent’s influence may be rising while hardliners like Navarro may be moved aside also leans to the bullish.

Nevertheless, even with the 90-day reciprocal pause tariff rates are still meaningfully higher (with 10% auto, steel, and aluminum tariffs still in place). There also remains skepticism that the White House has the bandwidth or sense of urgency to negotiate dozens of bilateral trade deals in the next three months. There are also no signs the situation with China will see any near-term improvement. And alongside these developments, longstanding US exceptionalism/safe haven perceptions are being reevaluated. 

What happened elsewhere?:

After some delay to appease deficit hawks, the House passed a budget blueprint aligning with the Senate’s, setting up the next phase of passing Trump’s tax-cut and spending agenda via the filibuster-skirting reconciliation method. However, final passage is not expected until the summer, and much remains to be negotiated in terms of spending cuts and tax-hike offsets.

The market absorbed $119B in new Treasury issuance. While a very weak, tailing $58B 3Y auction on Tuesday raised market concerns, Wednesday’s $39B 10Y auction and Thursday’s $22B 30Y auction both stopped through, with the latter seeing very strong domestic demand.

A busy week of Fedspeak saw continued statements about policy being in a good place and the need for patience in the face of uncertainties. Boston’s Collins said Friday the Fed would be prepared to deploy its tools on market functioning or liquidity concerns. The market took little signal from the March FOMC Minutes. While they also noted the high level of uncertainty about the macroeconomic backdrop, they were seen as very stale given intervening events. 

On the economic front, March core CPI came in cooler than consensus while the headline logged an outright monthly decline. Airline fares, used cars, vehicle insurance, and hotels were all down while shelter-price growth decelerated. March core PPI also came in cooler than expected. However, the impact of these releases were muted due to April’s tariff developments.

The week’s other notable releases included preliminary April UMich consumer sentiment, which saw its headline at the lowest level sine 2022; year-ahead inflation expectations printed at 6.7%, their highest point since 1981. Weekly initial jobless claimswere slightly higher w/w, though continuing claims were lighter than expected. NFIB small-business optimism slid again, moving below the long-term average. 

Corporate highlights:

While trade developments dominated the market narrative, investors also saw the unofficial open to the Q1 earnings season on Friday. JPM +12.3% beat and posted a slight raise to FY NII guidance, though it noted that IB clients have grown more cautious. WFC +2.5% EPS beat but NII and NIM were weaker. BLK +6.8% highlighted broad organic base fee growth against a complex market backdrop. MS +8.3% EPS beat with trading a bright spot (particularly Equities). Analysts were upbeat on BK +6.0% revenue and NII performance, with average loans and deposits remaining steady.

Other notable gainers this week included AVGO +24.4%, which announced a $10B buyback. BTU +21.6% was helped by administration support for the coal industry, HII +16.7% by support for domestic shipbuilding. DXCM +10.6% received FDA approval for its latest wearable glucose monitoring system. And DAL +9.7% Q1 EPS came in at the high end of its preannouncement range, with its report largely better than feared.

To the downside, WDFC (9.4%) earnings beat but revenue missed. KMX (9.7%) used unit comp growth was below consensus, with analysts flagging a high bar into earnings. GBX (10.7%) revenue missed and revenue guidance was cut. NEOG (28.5%) missed, trimmed guidance and announced a CEO transition. 

Coming next week:

Q1 earnings season gets underway in earnest with 33 S&P constituents reporting. Among the largest names are UNH, NFLX, JNJ, BAC, ABT, AXP, PGR, GS, SCHW, and C.

Next week’s biggest economic release will be March retail sales, out at 8:30am Eastern on Tuesday; consensus is expecting a 1.5% m/m increase after February’s 0.2% rise. Other reports will include import/export prices and the NY Fed’s Empire manufacturing survey (Tuesday); April’s NAHB homebuilder sentiment index (Wednesday); and March housing starts, weekly jobless claims, and the April Philly Fed manufacturing index (Thursday).

It will be a fairly light week of Fedspeak, though Barkin, Bostic, Daly, Hammack, Harker, and Schmid are on the schedule.

Note the US markets will be closed Friday in observance of the Good Friday holiday.

S&P 500 Sector Performance:

Outperformers: Tech +9.67%, Industrials +6.53%, Communication Svcs. +6.36%

Underperformers: Energy (0.39%), Real Estate (0.16%), Healthcare +1.21%, Utilities +2.38%, Consumer Spls. +3.08%, Materials +3.56%, Consumer Disc. +4.64%, Financials +5.64%

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