The S&P 500 Index ($SPX) (SPY) closed Wednesday up +9.52%, with the Dow Jones Industrials Index ($DOWI) (DIA) rising +7.87%, and the Nasdaq 100 Index ($IUXX) (QQQ) gaining +12.02%. June E-mini S&P futures (ESM25) increased by +9.62%, while June E-mini Nasdaq futures (NQM25) saw a boost of +11.90%.

U.S. stock indexes experienced a significant rebound from early losses, rallying after President Trump announced a 90-day pause on reciprocal tariffs affecting 56 countries. Stocks continued to rise in the afternoon as President Trump indicated he would consider tariff exemptions for certain U.S. companies.

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Market speculation suggests that President Trump’s decision to ease tariffs may stem from a recent surge in Treasury yields, hinting at potential systemic issues. Reports indicated that Japan was a major seller of Treasury securities, raising alarms that China might also unload significant amounts, potentially triggering a financial crisis in the U.S. While tariffs have been a weapon for the U.S., other nations have the ability to respond with both tariffs and capital, complicating the fiscal landscape given the U.S.’s significant federal budget deficit.

Early Wednesday saw stocks drop as new U.S. reciprocal tariffs took effect. This situation has sparked investor concerns about the dollar’s stability, leading to asset sell-offs. Specifically, the 10-year T-note yield jumped to a 1.5-month high of 4.511%, spurred by reports of substantial Treasury security sales by major investors.

Following China’s retaliatory measures, which included imposing 84% tariffs on U.S. goods, equity futures fell sharply. The yuan hit a 17-year low against the dollar in light of these tariff developments, with Europe also announcing retaliatory tariffs.

President Trump’s announcement to pause higher tariffs on 56 nations effectively lowered the rates back to the 10% benchmark rate seen with other countries. The new tariffs from China are set at 125%, up from the previous 104%. Concurrently, the EU imposed 25% tariffs on $21 billion worth of U.S. goods, impacting sectors like agriculture and automotive.

Economic Indicators and Fed Insights

The minutes from the March 18-19 Federal Open Market Committee (FOMC) meeting suggested economic stagnation may be a growing concern, painting a bearish outlook for stocks. Many Fed officials expressed worries that inflation risks were rising, while employment risks decreased.

Minneapolis Fed President Kashkari’s hawkish remarks weighed heavily on both stocks and bonds, indicating higher difficulty in adjusting federal funds rates amid tariff pressures. Federal Reserve policymakers are less inclined to reduce interest rates despite potential economic downturns because of inflationary effects associated with ongoing tariffs.

Comments from St. Louis Fed President Musalem echoed these fears, suggesting that the U.S. economic growth might significantly fall below trend, worsening joblessness as households and companies cope with rising import costs.

In mortgage trends, U.S. MBA mortgage applications surged +20.0% for the week ending April 4, buoyed by a +9.2% increase in purchase mortgages and a +35.3% rise in refinancing applications. The average 30-year fixed mortgage rate dipped -9 basis points to a 5.5-month low of 6.61% from 6.70% the previous week.

Recent trade-related concerns have pressured stocks, with fears that these tariffs might inhibit economic growth and corporate earnings. The initiation of a 25% tariff on goods from Canada and Mexico, along with a substantial increase on Chinese goods, has compounded investor anxieties. Further measures include the upcoming 25% auto tariff impacting foreign-assembled vehicles and auto parts.

Market Outlook and Upcoming Data Releases

Currently, the market estimates only a 19% chance of a -25 basis point rate cut following the FOMC meeting on May 6-7, down from 30% last week. Market focus this week will be on U.S. trade policies and potential global reactions to the tariffs.

Economic data due for release includes the March Consumer Price Index (CPI), projected to soften to +2.6% year-on-year from +2.8% in February, while core CPI is expected to ease to +3.0%. Additionally, the March final-demand Producer Price Index (PPI) is anticipated to rise to +3.3% from +3.2% in February.

The earnings season kicks off this Friday as major U.S. banks report their Q1 earnings. Bloomberg Intelligence projects a +6.7% year-over-year growth for S&P 500 earnings, a downgrade from earlier forecasts of +11.1% made in November 2022. Full-year corporate profits for 2025 are forecasted to increase by +9.4%, a decrease from January’s estimate of +12.5%.

Overseas markets concluded Wednesday with mixed results. The Euro Stoxx 50 fell sharply by -3.17%, while China’s Shanghai Composite Index climbed +1.31%. Japan’s Nikkei Stock 225 also finished lower, dropping -3.93%.

Interest Rate Trends

On Wednesday, June 10-year T-notes (ZNM25) closed down -1-4.5/32 points, with the 10-year T-note yield rising +6.8 basis points to 4.361%. The combination of fears surrounding U.S. tariffs and economic stagflation has pressured T-notes, as foreign investors began to divest from dollar assets, including stocks and treasuries. The day’s rise in equities also curtailed the safe-haven demand for T-notes.

The March 18-19 FOMC meeting minutes reinforced concerns about stagflation, while hawkish remarks from Fed President Kashkari further pressured T-notes as expectations for lowered interest rates diminished amidst ongoing tariff concerns.