Pathway Disrupted
US stocks rallied on Friday, fuelled by a strong jobs report and signs of easing US-China trade tensions that boosted investor confidence.
The S&P 500 rose nearly 1.5%, marking its ninth straight gain and its longest winning streak in two decades.
April’s nonfarm payrolls rose by 177,000, beating expectations and reinforcing optimism about the labour market despite ongoing tariff uncertainty.
Sentiment was further supported by Beijing's openness to renewed trade talks, contingent on the US reducing tariffs.
However, earnings results remained mixed—Apple shares slipped 3.7% after warning of a $900 million tariff hit, while Amazon edged lower by 0.1% after cautious guidance.
The S&P 500’s -14.7% drop from April 2 (close) to April 7 (intraday low) and -21.4% drop from its February 19 high, reflected panic over President Trump’s Liberation Day tariffs (10% on most imports, up to 145% on China).
The expectation was for tariffs to cause prices to increase and consumption to fall. Recession fear appears to have peaked when the CBOE volatility index (VIX) reached 60 on April 7 (fourth highest reading ever) and the high yield credit spread (pink line) widened to about 4.6% from 3.4%.
If recession was the expected destination, the financial markets are sigsignalling that the economy may be changing course. Rather than being down by about 15%, the S&P 500 is down roughly 1% from April 2. The VIX (fear index) has receded to the mid-20’s from 60 and slightly above the 21.5 average. The 10-year treasury rate has declined from a near-term peak of about 4.6% to 4.2%. The decline in the 10-year treasury rate suggests investors are less worried about inflation (and by inference, tariffs).
The financial markets are sigsignallingere may be headway in the de-escalation of tariff levels soon. The Chief Executive Officers of Walmart, Target and Home Depot met with President Trump at the White House to discuss tariffs on April 21.
Last week, the Hong Kong newspaper Ming Pao reported that Walmart, Target and Home Depot have asked their Chinese suppliers to resume shipments that had been suspended recently due to tariff uncertainty. The newspaper says that the U.S. retailers agreed to cover Trump’s 145% tariffs.
Like the financial markets, the Ming Pao report suggests that investors may see some favourable tariff news within a time frame that would mitigate the probability of a recession in the U.S.
Position Your Portfolio for Success - Join Us Today!
At The GRYNING Times, we bring decades of hands-on experience to help you navigate the markets and build lasting wealth.
With our institutional expertise and personalised advisory services, we offer you more than just advice - we provide actionable oversight and insights. Whether you're just starting out or refining a sophisticated portfolio, we're here to help you achieve your financial goals with confidence.
