Stocks soared as President Donald Trump authorized a 90-day pause on non-retaliating countries, easing concern about a widening trade war that has roiled financial markets.
With traders glued to screens awaiting fresh news on tariffs, volatility once again engulfed assets across the globe. Equities pushed away from their bear-market threshold, with the S&P 500 surging 7%. Treasuries traded well off session lows.
The minute-by-minute watch of new tariff headlines is making the trading landscape challenging even for market pros.
What was earlier shaping up to be a big down day for equities after China’s retaliation quickly reversed into a gains as Treasury Secretary Scott Bessent said he envisions trade agreements with U.S. allies.
Trump urged Americans to remain calm and continue investing — an indication the White House is closely monitoring the reaction to the levies.
“In the fog of war, extreme rallies are no healthier than extreme declines, as they are all emotion driven,” said Mark Hackett at Nationwide. “That is why markets rarely have a V-shaped bottom – it takes some churning and clarity to have a sustained recovery.”
Investors are fearing an oncoming breakage in the financial system, with a gauge of fear across the market for investment-grade credit spiking to the highest since 2023.
And the prospect of tariff-induced inflation — just as Treasuries misfire as a hedge — complicates the Federal Reserve’s policy response.
The escalating conflict in international commerce has now spurred Wall Street to ramp up recession warnings, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon saying it’s a “likely scenario.”
Ray Dalio, the billionaire founder of Bridgewater Associates, added to the chorus of warnings, citing the risk of “once-in-a-lifetime” breakdown in the monetary and geopolitical order.
There’s a growing discussion on Wall Street that the Fed may need to step in to stabilize the Treasury market if the rout that briefly propelled long-term US borrowing costs above 5% continues.
“If recent disruption in the U.S Treasury market continues, we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market,” said George Saravelos at Deutsche Bank.
“It feels like we’ve gone from shock, to panic, via a mini relief rally, to now worrying that the speed of recent market moves might’ve broken something under the surface,” said Michael Brown at Pepperstone.
There are signs of support for the S&P 500 around 5,000. Goldman Sachs Group Inc. partner John Flood said this is a level where long-term investors are starting to buy the dip.
“From my conversations with longer-duration investors, it feels like they will start scale buying the S&P 500 at 5,000 and get more aggressive in the mid-4,000s,” Flood wrote in a note to clients.
“It’s hard to trust any rally,” according to Mark Newton, head of technical strategy at Fundstrat Global Advisors. “Stocks are getting close to bottoming after being massively oversold, but we still haven’t seen the final low, and there’s still room to fall even further. No one knows what’s happening with tariffs.”
There’s a growing discussion on Wall Street that the Fed may need to step in to stabilize the Treasury market if the rout that briefly propelled long-term US borrowing costs above 5% continues.
“If recent disruption in the U.S. Treasury market continues, we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market,” said George Saravelos at Deutsche Bank.
“It feels like we’ve gone from shock, to panic, via a mini relief rally, to now worrying that the speed of recent market moves might’ve broken something under the surface,” said Michael Brown at Pepperstone.
There are signs of support for the S&P 500 around 5,000. Goldman Sachs Group Inc. partner John Flood said this is a level where long-term investors are starting to buy the dip.
“From my conversations with longer-duration investors, it feels like they will start scale buying the S&P 500 at 5,000 and get more aggressive in the mid-4,000s,” Flood wrote in a note to clients.
“It’s hard to trust any rally,” according to Mark Newton, head of technical strategy at Fundstrat Global Advisors. “Stocks are getting close to bottoming after being massively oversold, but we still haven’t seen the final low, and there’s still room to fall even further. No one knows what’s happening with tariffs.”
A slew of supposedly diversifying investment strategies are also failing to live up to their defensive billing.
Trend followers — a breed of quantitative fund who tout “crisis alpha,” or outperformance at times of market stress — have extended their worst losses in two years.
A strategy that goes long steady stocks and short volatile ones is down on the week. Hedge funds, whose defensive pitch is right in their name, also appear to be struggling.
In short, the protective approaches often relied on by institutional investors have been faltering just when they’re needed most. These could all be signs traders are dashing for the exits or being forced to offload more of their holdings.
That’s derailed all the usual market relationships from which defensive strategies try to profit.
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