Expect More
US stocks soared on Wednesday after President Donald Trump announced a 90-day pause on many of his new tariffs, causing a major market rally.
The S&P 500 skyrocketed 9.5%, marking its biggest gain in five years, the Dow Jones rallied 2,960 points, or 7.9%, its biggest gain since 2020, while the Nasdaq jumped 12.1%, its largest one-day jump since 2001.
The move extended the consistently-changing economic policy momentum by the administration, and would pause tariffs on key goods suppliers to the US that were initially hit with aggressive taxes like Vietnam and Cambodia.
Still, Trump continued escalating the trade war with China by raising their tariffs to 125%, while measures on the EU are unlikely to be paused because of Brussels' retaliation announcement.
Tech led the gains after taking the sharpest losses in the month's selloff up to now, with Nvidia soaring 18.7%, Tesla adding 22.7%, and Apple gaining 15.3%, marking its best day since 1998.
As we've discussed here in my daily notes, the Trump tariff strategy is really all about China.
With the reciprocal piece of the tariff plan due to be enforced across global trading partners today, the President made that crystal clear. His escalation tactic forced the world to take a side - 75-plus countries reaching out to the administration to make a deal, they've sided with the U.S. consumer.
The de-escalation came with the announcement of a 90-day pause on the reciprocal tariffs, except for China.
Stocks exploded higher on the news - it was the third biggest day (up) for the Nasdaq over the past 25-years ...
Interestingly, all of these big 10%+ days for the Nasdaq were relief rallies in bear markets.
With that in mind, the Trump "escalate to de-escalate" strategy we've talked about over the past few days is successfully isolating China – and it's been quick work.
Among the objectives in Trump's negotiations with global trading partners in the coming weeks and months, may be coordinating a global effort to put China in the global trade "penalty box" - a global retaliation against China's multi-decade predatory economic strategy.
The problem: The Chinese Communist Party won't comply, because they can't. They can't deliver on the demands of fair global trade and generate the domestic economic growth necessary to stay in power.
We saw it in the "Phase One" deal. They shook hands on the deal with Trump in the Oval office in October of 2019. Then they waffled on signing the deal, but ultimately sent the Vice Premier (not Xi) to sign the deal on January 15, 2020. And a month later, a pandemic originated from China. Not surprisingly, the Chinese government hasn't delivered on its obligations.
So, despite the relief rally, we should expect more disruption for markets over the coming months, as the global focus turns to China.