Five gut-wrenching days after Donald Trump’s America-versus-the-world trade war threw stock and bond markets around the globe into disarray, he backpedaled and, in the process, pulled the financial system back from the brink.
After starting the day lower, the S&P 500 Index soared nearly 10%, while the Nasdaq Composite Index jumped by the most since 2001. Short-term Treasuries sank, reversing earlier gains, as investors pared bets on interest-rate cuts and the dollar rose versus haven currencies like the Japanese yen and Swiss franc.
Volatility across markets was unprecedented. The VIX Index — what’s known as Wall Street’s fear gauge — plunged the most on record, while Treasuries have never fluctuated so wildly, with 2- and 30-year yields swinging over 0.3 percentage points on Monday and Wednesday. The two hadn’t seen such extreme moves at the same time since records begin in 1998.
The sudden U-turn in asset prices, which has punctuated trading from Tokyo to London and especially New York in each of the past four trading sessions, was once again triggered by Trump himself on Wednesday, who shortly after midday, abruptly announced a 90-day pause to the punitive tariffs he imposed on dozens of countries, even as he escalated his conflict with China.
Prior to Trump’s about-face, brutal selloffs pushed stock losses globally past US$10 trillion and strained bond markets across the developed world, from the US to the UK and Australia, where yields surged rapidly as investors frantically dumped government bonds to raise cash. Those moves — and then Wednesday’s rapid reversal — were the type usually only seen in crises like the onset of the pandemic in 2020 or during the turmoil that erupted when Bear Stearns or Lehman Brothers were felled by the US housing crash.
In this case, though, it was the result of an unpredictable US president who is trying to single-handedly rewrite the rules of global trade. That’s battered investor confidence, leaving them worried that a social media post could very well unravel the relief rally just as quickly as it broke out.
See also: China raises tariffs on US to 125% and says it won’t go higher
“Everything is crazy,” said Thomas Thornton, founder of Hedge Fund Telemetry.
The latest moves cap a week of turmoil that began when Trump shocked the world by announcing that he was imposing the highest US tariffs in over a century, saying it would bring back manufacturing jobs that moved overseas during the past several decades.
But it also threatened to upend the global economy by breaking supply chains, slashing cross-border trade and delivering another inflation shock to US consumers as imports grow more expensive. Wall Street economists and strategists rapidly downgraded their outlook for stocks and raised alarms about a potential recession.
See also: Trump lifts China tariffs to 145%
That risk hasn’t been eliminated by Trump’s pause, given that his chaotic rollout — and questions about his ultimate goal — have made it difficult for businesses to plan and has sown anxiety among US consumers. And, even as he temporarily backed down, he has been locked in a cycle of tit-for-tat retaliation with China, the world second-largest economy, and on Wednesday increased levies on imports from there to 125%.
That go-it-alone, shifting stance has left investors wary, even as the welcomed Trump’s decision to call a temporary truce.
“I am selling into this bounce,” said Michael Purves, founder and CEO of Tallbacken Capital Advisors. “This type of two-way volatility is tremendous, but it’s not uncommon in bear markets and it’s not an indication of a market bottom.”
The president and administration officials initially waved off the stock market’s response after prices swooned last week, jarring investors who were counting on what became known as the Trump put — the belief that losses of that magnitude would drive him to reverse course. He even reposted a TikToker’s video that indicated he was intentionally driving down stock prices so that interest rates would come down, too, providing relief to consumers.
But this week, as the losses piled up in financial markets globally, the opposite started happening when investors dumped Treasuries and other government bonds, sending US 30-year yields surging by the most since the pandemic struck. That threatened to deal another shock to the global economy by pushing up the costs of all kinds of loans.
The speed and scale of the bond selloff sowed speculation that crucial overseas investors — like China — may sell Treasuries to retaliate and that markets were at risk of seizing up as investors battered by recent turmoil rushed for the exits. There was widespread talk the Federal Reserve would need to stabilize the market.
As the stock market steadied on Wednesday, Trump weighed in, saying it’s “A GREAT TIME TO BUY!!!,” in what appeared to be his strongest sign of concern yet about the stock meltdown unleashed by his trade war — and perhaps a prelude of what was to come.
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Then, a little after 1pm, as the White House announced he was calling a temporary halt to many of the tariffs that just kicked in, waves of euphoria triggered another violent reversal.
By time the closing bell rang, the S&P 500 surged and the Nasdaq Composite jumped 12%. The bond market’s about-face was just as big: 30-year Treasuries rallied, wiping out their previous losses and leaving yields down slightly on the day. And two-year bond prices tumbled, sending yields up 20 basis points to 3.92%.
“We are living minute-to-minute,” said Eric Diton, president and managing director at Wealth Alliance.
“There was a whole bunch of petrified people out there trying to grasp at something positive,” he said. “I don’t think this is the bottom, that can’t be called until we see actual deals signed.”
