After weeks of turbulence, financial markets appear to be finding their footing. According to a report by Standard Chartered's Wealth Solutions Global CIO Office, the recent rebound in risk assets, prompted by a pause in US tariffs, has revived hopes of an economic soft landing.
The April 17 report suggests that the volatility roiling markets was, in large part, a consequence of policy uncertainty rather than a signal of deeper economic malaise.
With trade tensions easing, the US is expected to pivot toward more pro-growth initiatives such as tax cuts and deregulation.
"We expect the US to eventually strike trade deals with major partners, and then focus on tax cuts and deregulation, helping stabilise the economy, risk assets and the US dollar," notes the report.
The so-called 'Trump put', the notion that the US administration steps back from brinkmanship in the face of market pain, appears to be back in play.
The suspension of tariffs, which excluded China but included other major partners, came only after the S&P500 had slumped by 20% from recent highs and bond yields swung violently.
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Furthermore, in what the bank interprets as a further sign of de-escalation, president Trump's nomination of treasury secretary Scott Bessent to lead trade negotiations with Japan is read as a signal of a softer stance going forward.
Currency markets have also not been immune to this policy volatility. The US dollar and US government bonds have both come under pressure in recent sessions, but Standard Chartered sees these moves as overdone.
On this, the report notes: "We expect the US dollar to bounce in the coming weeks, especially versus the EUR and GBP."
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Remarks from US Federal Reserve (US Fed) chair Jerome Powell, indicating a hold in interest rates amid trade-related uncertainty, lends additional support to monetary support.
Still, the report warns: "We would caution against taking excessive foreign exchange risks while policy outlook remains uncertain."
Meanwhile, investor sentiment has taken a battering. Despite this, Standard Chartered believes the setup is ripe for a near-term equity rebound. Positioning in US equities, by the bank's own measures, has dropped to levels not seen since the Covid-19 crash.
The bank's proprietary 'Fear and Greed' indicator remains entrenched in the 'fear' territory, even after recovering from last week's 'extreme fear' levels.
"We believe this suggests a higher-than-normal probability of a recovery in the coming weeks," notes the bank. It adds: "Our quantitative stock vs. bond model turned mildly positive for equities again after briefly falling to negative in end-March."
US corporate earnings are also under the microscope, with particular interest in how firms articulate the impact of trade tensions on their outlooks. Consensus estimates for S&P500 earnings growth in 2025 have been trimmed to 8.6%, down from 10.5% at the end of February.
Industries such as retail, airlines and logistics have flagged revenue risks tied to tariff fears. Meanwhile, investors are watching the tech and communications sectors for potential fallout from China's rollout of DeepSeek, the new low-cost AI chatbot.
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Despite this, the report also notes that an earnings downgrade in recent months lowers the bar for companies to beat estimates.
Beyond earnings, Standard Chartered highlights key data points to watch in the real economy.
Consumption indicators and jobless claims will reveal whether trade policy uncertainty has begun to weigh on households and hiring. For now, the signs are mixed.
US retail sales were stronger than expected in March, likely driven by consumers rushing to front-run anticipated price hikes. Auto sales, too, surged to levels not seen since the post-pandemic buying frenzy of 2021. But future strength may prove fleeting.
"Future sales are likely to be hit as the front-running of tariffs fades," adds the report.
In the meantime, the bank recommends staying diversified and opportunistic. "We continue to look for bargains, while ensuring allocations remain diversified across asset classes and geographies."
In particular, recent market movements have opened opportunities in fixed income. "We would use the recent selloff in US government bonds to add to this historically defensive asset class."
Standard Chartered also forecasts that yields on 10-year treasuries could drift lower. The report writes: "We see the US 10-year government bond yield falling towards the 4.0-4.25% range in the next 12 months."
The latest rebound in yields, the bank adds, was "mainly driven by technical factors which are likely to fade as authorities take steps to boost market liquidity."
Finally, as for gold, the year's best performing major asset, it remains a preferred hedge, despite appearing overbought.
"Investors under-allocated to gold could consider such a correction as an opportunity to add exposure," notes the report, citing sustained demand from emerging market central banks and gold's proven role as protection against stagflation risks.
