Wall Street experienced another volatile day as U.S. stocks surged amidst ongoing concerns regarding the U.S. dollar's declining value and broader financial market fluctuations, largely attributed to President Donald Trump's trade war. Despite the day's gains, underlying anxieties persist.
The S&P 500 concluded the day with a 1.8% increase, marked by significant oscillations between gains and losses, thereby concluding a week characterized by extreme volatility. Similarly, the Dow Jones Industrial Average rebounded from an initial slump of nearly 340 points to ultimately close 619 points higher. The Nasdaq composite also saw a rise of 2.1%. This upward momentum was partly fueled by a reduction in pressure within the U.S. bond market.
Earlier in the day, U.S. stocks showed signs of recovery, although the diminishing value of the U.S. dollar, coupled with other market shifts, suggested continued apprehension over potential escalations in President Trump's trade disputes, particularly with China.
During afternoon trading, the S&P 500 was up by 1.5%, showcasing the day's erratic trading pattern as it approached the end of a historically turbulent week. The Dow Jones Industrial Average recovered from an early dip of approximately 340 points to register a gain of 567 points, or 1.4%, with trading nearing its close. The Nasdaq composite also increased by 1.7%.
The stock market's buoyancy was aided by some easing in the U.S. bond market. The bond market, often perceived as a more stable sector of Wall Street, had been signaling considerable stress throughout the week, drawing the attention of both Wall Street and the Trump administration.
The yield on the 10-year Treasury note reached over 4.58% in the morning, a notable increase from 4.01% the previous week, reflecting a substantial shift in a market where changes are usually measured in small fractions of a percentage point. Such increases can push up interest rates on mortgages and various loans for U.S. households and businesses, which could potentially decelerate economic growth.
However, Treasury yields moderated as the afternoon progressed, with the 10-year yield settling at 4.48%, still above the previous day's level but less dramatically so.
Susan Collins, president of the Federal Reserve Bank of Boston, commented to the Financial Times that the Fed possesses the necessary tools to address concerns regarding market functionality or liquidity, if needed, and remains prepared to act should market conditions become disorderly.
Several factors may have contributed to the week's surge in U.S. Treasury yields. Investors from outside the United States might be divesting from U.S. bonds due to the trade war, while hedge funds could be selling assets to raise capital to offset other losses. Additionally, concerns may be growing about the United States' stability as a safe haven for investments.
The U.S. dollar's value also declined against major currencies, including the euro, Japanese yen, and Canadian dollar.
Despite these concerns, gold, often considered a safe haven for investors during times of uncertainty, saw its value rise, reinforcing its status.
This unstable trading environment emerged following China's announcement of increased tariffs on U.S. products to 125%, escalating the retaliatory measures in response to President Trump's import escalations.
A Finance Ministry spokesman stated that the U.S. tariff increases on China have become a meaningless numbers game and will be seen as a joke in economic history. The statement added that if the U.S. persists in significantly infringing on China's interests, China will firmly counter and fight to the end.
Escalating tensions between the world's two largest economies could lead to widespread economic damage and potentially a global recession, even after Trump recently announced a 90-day pause on tariffs for countries other than China.
The uncertainty caused by the trade war is undermining confidence among U.S. consumers, which could affect their spending habits and harm the economy, which had been performing well.
A preliminary survey from the University of Michigan indicated that U.S. consumer sentiment is declining more sharply than economists had anticipated. According to survey director Joanne Hsu, this decline was pervasive across various demographics, including age, income, education, region, and political affiliation.
Darrell Cronk, president of Wells Fargo Investment Institute, noted that we are still in the early stages of this global trade regime change, and while the tariff pause temporarily reversed the market selloff, it prolongs uncertainty.
The market fluctuations followed stronger-than-expected profit reports from major U.S. banks, which traditionally mark the start of the earnings season.
JPMorgan Chase, Morgan Stanley, and Wells Fargo all reported higher profits for the first quarter than analysts had predicted. JPMorgan Chase increased by 4.5%, Morgan Stanley by 2%, while Wells Fargo decreased by 1%.
Additionally, an inflation report indicated better-than-expected figures, potentially allowing the Federal Reserve greater flexibility to cut interest rates to support the economy.
However, the wholesale-level inflation report reflected past conditions in March. Concerns remain that inflation could increase in the coming months due to Trump's tariffs, potentially limiting the Fed's options.
The University of Michigan's survey suggested that U.S. consumers anticipate an inflation rate of 6.7% in the coming year, the highest since 1981, potentially creating a feedback loop that further drives up inflation.
Global stock markets showed mixed results, with Germany's DAX declining by 0.9%, while London's FTSE 100 rose by 0.6% following a report of economic growth in February. Japan's Nikkei 225 decreased by 3%, while Hong Kong's Hang Seng increased by 1.1%.