Major Stock Indices Rally Amid Tariff Uncertainty and Economic Concerns

The S&P 500 Index ($SPX) (SPY) today rose by +3.05%, while the Dow Jones Industrials Index ($DOWI) (DIA) increased by +3.01%. The Nasdaq 100 Index ($IUXX) (QQQ) was up +3.39%. Additionally, June E-mini S&P futures (ESM25) climbed +3.04%, and June E-mini Nasdaq futures (NQM25) went up +3.16%.

Stock indexes showed substantial gains today, rebounding from significant losses incurred over the past three sessions, during which the S&P 500 had fallen nearly 15% from last Wednesday’s close. This rally was fueled by hopes for a trade deal with Japan, following a call between President Trump and Prime Minister Ishiba on Monday. The conversation raised optimism about potential negotiations to prevent a 24% tariff on imports scheduled to begin on Wednesday.

However, tariff anxieties linger. President Trump rejected a proposal from the European Union (EU) to eliminate tariffs on bilateral trade in industrial goods with the US, meaning a 20% tariff on all EU imports is still set to start on Wednesday. Additionally, China has promised to retaliate against Trump’s latest threat to impose 50% tariffs on all Chinese goods if it does not remove its 34% tariffs on US goods by the same deadline. China’s Ministry of Commerce expressed that the US’s escalating tariffs are “a mistake on top of a mistake,” signaling that China will resist such actions firmly.

Concerns regarding the potential economic fallout from tariffs were echoed by Chicago Fed President Goolsbee late Monday, who noted that some business leaders fear that such measures could revert the economy to the turbulent inflation conditions of 2021 and 2022.

Market Context and Trade War Implications

On Monday, global equity markets experienced sharp declines due to fears that a trade war could lead to a recession. The sell-off began last Wednesday after President Trump announced more severe reciprocal tariffs than anticipated, prompting worries about negative impacts on both the US and global economy. Losses deepened last Friday when China announced a 34% tariff on all US imports starting April 10 in retaliation to US tariffs. On Monday, Trump confirmed that there would be “no pause” on tariffs, indicating that additional tariffs would be levied on China if it did not retract its newly imposed tariffs.

Last week, Trump revealed that the US would impose at least a 10% tariff on imports from nearly all countries, increasing reciprocal rates for about 60 nations. These tariffs began to take effect last Saturday, though select industries like steel and automobiles were exempted, and Canada and Mexico were offered previous rates of 25%. Notably, China faces a substantial 67% tariff rate due to the latest adjustments, while the EU and Japan see rates of 39% and 46% respectively.

Market Outlook and Upcoming Events

For the past month, stock prices have been pressured by fears surrounding the impacts of US tariffs on economic growth and corporate earnings. Earlier in March, President Trump enacted a 25% tariff on Canadian and Mexican goods and increased the tariff on Chinese goods from 10% to 20%. Additionally, a proclamation was signed last Wednesday to enforce a 25% tariff on US auto imports.

Markets are currently pricing in a 27% chance of a -25 bp rate cut following the FOMC meeting on May 6-7, a slight decrease from 30% last week.

This week will likely remain focused on US trade policies and potential retaliatory measures from other countries. Key economic reports are on the calendar: the FOMC meeting minutes from March will be released on Wednesday, followed by the March CPI expected at +2.6% year-over-year, down from 2.8%. The Producer Price Index (PPI) is projected to show a year-over-year increase of +3.3% in March, up from +3.2%. Lastly, University of Michigan’s consumer sentiment index is anticipated to drop to 54.0 from 57.0.

The earnings season kicks off this Friday with major US banks set to release their quarterly results. Bloomberg Intelligence forecasts a Q1 year-over-year earnings growth of +6.7% for the S&P 500, a decline from the +11.1% expectation in November. For 2025, corporate profits for the S&P 500 are predicted to rise by +9.4%, down from earlier forecasts of +12.5%.

International Market Performance

Stock markets abroad are also performing well. The Euro Stoxx 50 gained +3.14%, the Shanghai Composite Index in China closed up +1.58%, and Japan’s Nikkei Stock 225 experienced a significant rise of +6.03%.

Interest Rate Update

Today, June 10-year T-notes (ZNM25) are down -22 ticks, resulting in a +6.5 basis point rise in the 10-year T-note yield, now at 4.249%. The slight decrease in T-notes is linked to recovering global equity markets, which reduced demand for government security. Concerns surrounding inflation driven by tariffs further influenced T-note prices as voiced by Goolsbee.

European bond yields are also trending higher, with the 10-year German bund yield increasing by +6.1 basis points to 2.674% and the 10-year UK gilt yield up +3.2 basis points to 4.647%.

Simkus, a member of the ECB Governing Council, has suggested that the ECB should consider a rate cut this month. Swaps are showing a 90% likelihood of a -25 bp cut at the ECB’s April 17 policy meeting.

US Stock Movers

In the US stock market, the “Magnificent Seven” tech stocks demonstrated remarkable strength today. Nvidia (NVDA) surged over +7%, while Meta Platforms (META) and Tesla (TSLA) rose more than +4%. Other tech giants including Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), and Alphabet (GOOGL) also recorded gains exceeding +3%.

Health insurance stocks are rallying as news breaks that the Centers for Medicare & Medicaid Services has finalized significant changes affecting the industry.