The S&P 500 Index ($SPX) (SPY) closed up +1.81% on Friday, while the Dow Jones Industrials Index ($DOWI) (DIA) rose by +1.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) increased by +1.89%. June E-mini S&P futures (ESM25) are currently up +1.84%, and June E-mini Nasdaq futures (NQM25) have climbed +1.88%.

During a volatile trading session, stocks made a notable recovery after experiencing a mid-morning dip. This resurgence was attributed to short covering, particularly after the Financial Times reported comments from Boston Fed President Collins. He stated that the Federal Reserve is prepared to step in and stabilize the financial markets if they show signs of disorder. Support for stocks also came from better-than-expected Q1 earnings from U.S. banks and easing price pressures, as the March U.S. PPI report showed a smaller-than-anticipated increase.

Despite this rally, stocks briefly turned lower earlier in the day due to a significant plunge in U.S. consumer sentiment and a concerning rise in price expectations. The University of Michigan’s April consumer sentiment index dropped more than anticipated to a 2-3/4 year low. Additionally, the April 1-year inflation expectations soared to their highest level since 1981, driven by growing tariff concerns.

Further complicating the market landscape, U.S. chip manufacturers faced pressure after the China Semiconductor Association announced that chip tariffs would be based on the location of manufacture rather than shipment. This development contributed to a drop in tech sector confidence.

Interestingly, the March final-demand PPI eased to +2.7% year-over-year, down from +3.2% the previous month, which was better than expectations of +3.3%. Moreover, the PPI excluding food and energy also fell unexpectedly.

The University of Michigan’s consumer sentiment index experienced a decline of -6.2 to a low of 50.8, against forecasts of 53.5. Meanwhile, the 1-year inflation expectations indicator climbed to +6.7%, surpassing expectations of +5.2%, marking the highest level since 1981. Additionally, the 5-10 year inflation expectations rose to +4.4%, slightly above anticipated levels.

Comments from Fed officials revealed a bearish outlook for stocks and bonds. Minneapolis Fed President Kashkari emphasized that potential inflationary pressures from tariffs could hinder the Fed’s ability to reduce interest rates, even with a softening economy. St. Louis Fed President Musalem also forecasted the risks of stagflation in the U.S. economy, indicating inflation may rise while employment weakens.

New York Fed President Williams supported this stance by suggesting that the current monetary policy is suitable given the job market and elevated inflation. His remarks pointed to expectations of slower growth, increased unemployment, and inflationary pressures linked to tariff policies.

Heightened tensions in the U.S.-China trade war have also created a negative sentiment in the stock market, particularly after China announced a tariff hike on all U.S. goods to 125% from 84%. This retaliatory measure followed the U.S. increasing tariffs on Chinese imports. The Chinese Ministry of Finance asserted plans to “resolutely counterattack” against U.S. actions perceived as infringement on its rights.

With these economic uncertainties, the U.S. dollar declined sharply, hitting a 3-year low, while gold prices surged to an all-time high. The impact of U.S. trade policies has not only undermined consumer confidence but also prompted companies to put capital spending plans on hold, potentially hampering GDP growth.

On Wednesday, President Trump announced a temporary 90-day halt on increased tariffs for 56 countries but maintained a 10% baseline tariff on most nations. In a reciprocal move, the EU also postponed the implementation of 25% tariffs on €21 billion worth of U.S. goods for 90 days.

Concerns about U.S. tariffs have applied pressure on stocks, prompting fears of declining economic growth and corporate earnings. Significant tariffs were enacted on March 4 by President Trump. These included a 25% tariff on Canadian and Mexican goods and an increase on Chinese tariffs to 20%. The new 25% tariff on U.S. auto imports was also introduced. This policy change affects vehicles assembled abroad and is set to expand to automobile parts.

The market is currently pricing in a 25% chance of a 25 basis points rate cut after the upcoming FOMC meeting on May 6-7.

The Q1 earnings season commenced on Friday, with major U.S. banks reporting results. Bloomberg Intelligence data suggests a consensus forecast of +6.7% year-over-year earnings growth for S&P 500 companies, down from earlier expectations of +11.1%. Projections for full-year 2025 profits indicate a +9.4% increase, a decrease from an earlier forecast of +12.5%.

International markets showed mixed performance on Friday. The Euro Stoxx 50 dropped -0.66%, while China’s Shanghai Composite Index rose, closing up +0.45%. In contrast, Japan’s Nikkei Stock 225 fell -2.96%.

Interest Rates

June 10-year T-notes (ZNM25) closed down -27.5 ticks, pushing the 10-year T-note yield up by +5.3 basis points to 4.478%. T-notes hit a 7-week low on Friday as a result of ongoing market uncertainties, with yield peaks recently marked at an 8-week high of 4.586%. The tariff conflict has intensified selling pressure on the dollar, affecting foreign investments in U.S. stocks and bonds.

T-notes faced further decline with news of surging inflation expectations. The University of Michigan’s April 1-year inflation expectations jumped to +6.7%, the highest figure in four decades. Hawkish comments from the Fed officials weighed on T-notes, yet a report suggesting the Fed’s readiness to intervene helped them recover somewhat.

European bond yields largely traded mixed. The 10-year German bund yield fell by -0.9 basis points to 2.570%, while the 10-year UK gilt yield rose by +11 basis points to 4.753%.

Moreover, UK manufacturing production in February increased by +2.2% month-over-month, exceeding expectations.