The wild ride on U.S. stock markets took a dizzying turn Wednesday afternoon when President Donald Trump announced a pause on some of his harshest tariffs, sending the S&P 500 soaring toward its biggest gain since March 2020.
The S&P 500 Index surged 9% in afternoon trading. The index is headed for its first advance since Trump’s trade war wiped $11 trillion in value from U.S. stocks. All 11 S&P 500 sectors rose at least 2.5%.
The Nasdaq 100 Index surged 11.3%. The Dow Jones Industrial Average rallied more than 7.1%. The two-year Treasury yield hit 3.9%. Circuit breakers designed to tamp down volatility in times of market turbulence only trigger for downside moves.
“I have authorized a 90 day pause, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted on Truth Social. The pause does not include tariffs on China, which Trump raised to 125% after the Asian nation retaliated earlier in the day.
Goldman Sachs Group Inc.’s basket of the most-shorted stocks jumped 13%, beating the S&P 500’s gain. The move comes as traders rushed to cover short positions they accumulated amid the market downturn.
On Tuesday, JPMorgan Chase & Co.’s prime brokerage desk warned that a market rally would force hedge funds to cover short positions that have been added “aggressively.”
Rapid stock buying by leveraged exchange-traded funds also contributed to the velocity of the move.
“Levered ETFs mechanically adding long equity exposure supercharged the rally,” according to Daniel Kirsch, head of options for the brokerage Piper Sandler & Co. He said traders moved quickly to unwind downside hedges, which also contributed to the move.
UBS Group AG’s trading desk also sees clients unwinding hedges, while “a high level of skepticism remains despite the headlines,” said Michael Romano, the firm’s head of hedge fund equity derivative sales.
Retail traders were among the most active buyers Wednesday. As of 2:00 p.m. Wednesday they already bought $3.3 billion of equities, which hit the third-largest amount on record for the first 4.5 hours of US trading, according to Emma Wu, JPMorgan’s global quantitative and derivatives strategist.
Shares of Nvidia Corp. soared 16.89%, Delta Air Lines Inc. jumped 22.51%, Advanced Micro Devices added 22.33% and Tesla Inc. rallied 20.64%%. Nvidia Corp. and other major chipmakers rose at least 10%. Only four S&P 500 stocks were lower.
Wall Street’s so-called fear gauge, the Cboe Volatility Index, or VIX collapsed to 35 from 50.
“It feels like his advisers have talked him off the cliff,” said Laura Lau, senior vice-president and chief investment officer at Brompton Corp. She said there was still a lack of clarity on what countries exactly were spared from tariffs and how dramatically Trump is still prepared to escalate his trade war with China. “It’s hard to have a fundamental view.”
That the reprieve excludes China was cause for some concern on Wall Street.
“Respite? Further economic suicide? It will all depend on where you source product from of course, and unfortunately about $450 billion is still being imported from China,” Peter Boockvar of Bleakley Financial Group wrote in a note titled “Dramamine Please."
U.S. stocks are on pace to post the first daily gain after Trump announced tariffs on U.S. trading partners April 2.
Some trading desks saw a spike in retail buying. JPMorgan Chase & Co. global quantitative and derivatives strategist Emma Wu said retail traders bought $719 million in first hour of the day, higher than the average volume in the last month.
Earlier in the session, Trump indicated he was at least paying attention to the market volatility, writing on Truth Social that “this is a great time to buy” and urging Americans to “BE COOL” amid the turbulence.
“While it’s very bullish for markets short-term, it’s a temporarily sign if a relief but it doesn’t solve the tariff problem,” Brent Kochuba, Founder of SpotGamma, said of the pause.
The latest change of direction shook investors across Wall Street.
“Trying to keep up with it is insane,” said Ross Mayfield, an investment strategist at Baird Private Wealth Management, referring to the President’s online comments. “If that’s enough to move markets, then I guess that it’s the kind of market we’re in.”
U.S. stocks had been at the the most oversold since the depths of the pandemic, and traders are looking for a market bottom. One technical level to watch is is 4,910, the roughly 20% threshold below the S&P 500’s February peak, which provided key support late Tuesday.
There are also 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,” he wrote in a note to clients on Tuesday.
To Societe Generale’s Arthur van Slooten, investors are focused on potential policy reactions to tariffs, such as negotiations, retaliation and opportunities for a market rebound.
“For investors that are ready to accept a high level of market volatility a ‘tarrific’ entry-point has just been created,” van Slooten wrote.
U.S. companies are already struggling to navigate the uncertainty. Amazon has canceled orders for multiple products made in China and other Asian countries, a sign that it wants to limit exposure to heavy import taxes.
Delta Air Lines Inc. withdrew its full-year financial guidance, declining to reaffirm a forecast issued in January. Shares in large U.S. and European drugmakers slid after President Donald Trump said the U.S. was planning to announce “a major tariff on pharmaceuticals” soon.
Shares in oil and gas producers dropped Wednesday morning, following crude prices lower as the intensifying trade war endangers energy demand.
“Combined with uncertainty about retaliation, lower consumer sentiment, lower corporate sentiment, and the negative wealth effect of the $10 trillion decline in the stock market, we continue to worry about downside risks to markets and the economy,” Apollo Management’s Torsten Slok wrote.
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