On Wall Street, talk is not cheap.
After President Donald Trump’s “liberation day” tariffs on April 2, the S&P 500 index SPX managed to escape corrective territory on Thursday, closing at least 10% higher than its most recent low.
As the chart below illustrates, Wall Street’s response to those new responsibilities was immediate and brutal, sending the S&P 500 plunging to a new low on April 8.
When Trump announced a 90-day freeze on additional tariffs for most countries, with the exception of China, the following day, April 9, the bond market was in turmoil and there was a concerning liquidity pinch.
According to Dow Jones Market Data, the S&P 500 recovered an incredible $4.253 trillion in market capitalization from the low on April 8 to the close on Thursday.
Was the market low at the time? According to Jamie Cox, managing partner at Harris Financial Group, the S&P 500’s recent steep plunge and equally spectacular comeback weren’t totally unexpected, even though it is still 10.7% below its record closing high from February.
During the recent turmoil, Cox has been tracking the sharp rise to above 50 in Wall Street’s Cboe Volatility Index VIX, or “fear gauge,” as well as its swift decline to about 20. “When that unwinds, you are going to have sharp moves in the opposite direction,” he stated regarding stocks.
Over the last three days, stocks have risen as Trump has backed down from his recent criticism of Federal Reserve Chair Jerome Powell, stating that he has no plans to fire the central bank leader before his term ends in May 2026.
In a client letter on Thursday, economist Tiffany Wilding and Pimco’s Libby Cantrill, head of public policy, stated that firing Powell “might hinder, not help,” if “the Trump administration’s goals is lower interest rates for the real economy.”
In fact, the crucial 10-year Treasury yield BX:TMUBMUSD10Y settled after recording its biggest weekly movement since 1987 almost two weeks ago, dropping six basis points to 4.32% on Thursday.
“Markets rise and fall based on what the Fed might do,” Cox stated. “Putting that to rest is a big deal.”
According to Cox, if Trump can close a few trade agreements in the coming months and steer clear of any Fed attacks that sent “a lot of people running for the hills,” equities should return to their previous highs.
If progress can be achieved in passing a budget deal, including resolving the U.S. debt-ceiling issue, then Congress’ return next week after a two-week recess could help reinvigorate Wall Street.
Conversely, the location of tariffs will determine how the U.S. economy and that of other countries fare. Cox stated that while agreements with European countries and other nations begin to take shape sooner, he expects talks with China to take place over a number of years.
On Thursday, the Dow Jones Industrial Average (DJIA) increased 1.2% to close at 40,093.40, while the S&P 500 increased 2% to close at 5,484.77. According to Dow Jones Market Data, the Dow must close above 41,410.15 in order to break out of its correction.
The Nasdaq Composite Index COMP closed at 17,166.04, up 2.7%. After falling at least 20% from its previous peak, it is in a bear market and would need to close at 18,321.50 or above in order to depart.
