Wall Street Rally Amid Tariff Concerns and Fed Intervention Signals
The week concluded on a positive note for Wall Street as the S&P 500 index recorded a significant upturn by 1.8% on Friday, contributing to an overall weekly gain of 5.7%. This marked the strongest weekly increase for the index since November 2023, although it remains down 4.4% for the month.
Market Movements and Federal Reserve Response
Market volatility was exacerbated by President Donald Trump’s unexpected changes in tariff policies. The announcement on Wednesday to pause substantial “reciprocal” tariffs, excluding China, led to a remarkable 9.5% surge in the S&P 500, marking its best performance in a single day since 2008. However, Thursday’s trading saw a reversal as major Wall Street banks expressed concerns that high tariffs on China might tilt the U.S. economy into recession, which in turn triggered a sell-off in U.S. government debt and the dollar.
Encouragement came from Susan Collins, the president of the Boston Federal Reserve, who stated that the central bank is “absolutely” ready to intervene should market conditions deteriorate. This remark helped instigate a late rally within the stock market on Friday.
Treasury Yields and Volatility Measures
Following this rally, the sell-off in Treasuries moderated, with the yield on the 10-year Treasury bond rising by 0.07 percentage points to 4.47%, down from a more severe increase earlier in the day. This stabilization in yields contributed positively to stock market performance.
The decline in the VIX, a common indicator of market volatility and dubbed Wall Street’s “fear gauge,” signified a retreat to session lows amid the equities recovery on Friday. Despite the day’s gains, skepticism lingers among investors regarding the potential economic repercussions of ongoing tariff disputes.
Economic Forecasts and Expert Insights
Concerns regarding the possibility of recession remain front and center. James Knightley, chief international economist at ING, asserted, “Recession risks are real,” highlighting that tariffs could inflate prices and diminish consumer spending, compounded by worries about government spending cuts affecting jobs and entitlements.
John Williams, head of the New York Fed, projected that U.S. growth may decelerate “considerably” in 2024, potentially sinking below 1%. He cautioned that tariffs could elevate inflation rates to around 4% from the current figure of less than 3% and contribute to rising unemployment rates.
Analysts like Torsten Sløk at Apollo Global Management described current conditions in the bond market as a “perfect storm,” emphasizing a blend of foreign selling and general risk aversion contributing to rising Treasury yields.
Commodities and Oil Market Reactions
In commodity markets, oil prices experienced a recovery, increasing by more than 2% on Friday. This uptick followed remarks from U.S. Energy Secretary Chris Wright, indicating that the U.S. might restrict oil exports from Iran in efforts to mitigate Tehran’s nuclear ambitions. Brent crude settled at $64.76 per barrel, and West Texas Intermediate closed at $61.50 per barrel, concluding a volatile week influenced by U.S.-China trade tensions and its implications for the global economy.
Wright’s comments considerably influenced oil prices, as markets weighed the potential of reduced global supplies from U.S. action against Iran, resonating with investors as he embarked on a two-week diplomatic trip to the Middle East.
