The global financial market has remarkably weathered numerous uncertainties including escalating trade disputes, military extractions in the Middle East, and a steady stream of criticisms from the U.S. President towards the Federal Reserve’s leadership. Even under this storm of events, the resilient market saw a record surge recently, rewarding those investors who held their positions during this bumpy period. The S&P 500 signaled this triumph by closing at an unprecedented high of 6,173. Despite this financial feat, the road ahead is not less challenging. Future economic indicators and Q2 earnings reports may expose the real effects of those tariffs already enforced, along with the impending timeline for the suspension of many existing tariffs in early July.
The journey to this high began with President Trump’s statement from the Rose Garden on April 2nd, where he implemented higher tariffs on virtually all U.S. trading accomplices, particularly focusing on China. This led to an approximately 12% drop in the S&P 500 within just four days, followed by a steep decline of nearly 4,600 points in the Dow Jones Industrial Average, a loss of around 11%.
While the plummet in stock values was noticeable, it was the unsettling realities manifesting in the bond and foreign exchange markets that caught the President’s attention. Decreasing prices for U.S. government bonds suggested that its Treasury market might be slipping from its esteemed position as a global safety reserve. Alongside this, the diminishing U.S. dollar value indicated waning confidence in the United States as a robust hub for investors.
The President’s response came in the form of a 90-day pause in tariff enforcement for most countries, excluding China, on April 9. This decision sparked a massive increase in the S&P 500 of approximately 9.5%, marking one of its historically best performances. Consequently, in May, the UK and the US reached a trade agreement. However, the most significant development came with the announcement of the rollback of most tariffs imposed by the US and China. However, they have not released exhaustive specifications of the agreement yet.
Uncertainties loomed when President Trump hinted at potential tariffs against the European Union, but these worries were mitigated when he confirmed a delay until July 9, providing time for negotiation.
Meanwhile, the world’s attention shifted from the trade war to the actual military conflict that escalated between Israel and Iran. This geopolitical tension had a direct impact on oil prices, causing a sudden increase which posed a risk to global inflation and economic growth. A cease-fire following the US attack on Iranian nuclear facilities led to a decisive drop in oil prices, which helped Wall Street continue its upward journey.
Away from the international theater, domestically the President has been lobbying for the Federal Reserve to implement interest rate cuts. In line with this, the President has been publicly criticizing the Federal Reserve’s Chair, whose tenure is set to expire next year. Based on reports, the President may reveal his nominee for the new chair ahead of schedule, adding an element of unpredictability to bond and foreign exchange trading.
Despite the ongoing geopolitical and domestic pressures, robust profit reports from the first quarter mitigated the impact of tariffs on the markets. Upcoming earnings reports for the quarter ending June 30 are anticipated, however, Wall Street analysts are still forecasting a solid growth of 5% for the companies in the S&P 500, despite lowering their initial expectations.
Markets still seem vulnerable to trade-related news as indicated by the temporary drop in the S&P 500 on Friday, following President Trump’s announcement regarding a halt in trade talks with Canada due to their continuation of tech firm taxation. Over the weekend, Canada withdrew the tax and President Trump indicated he had no plans of extending the 90-day pause on tariffs, due to end on July 9. Furthermore, he stated that the trade penalties would be enforced unless agreements were made with the US. Yet, the markets are aware of the President’s tendency to shift positions on tariffs. The President may also reveal that discussions with targeted countries are progressing, which could lead to an additional delay.