Stocks gapped down and drifted lower after China announced retaliatory tariffs in its trade war with the U.S. Another set of encouraging inflation data found more purchase today, though, and the bond market showed signs of stabilizing after a historically volatile week. That was enough for stocks to wipe out losses and wind up with their best weekly rally since 2023.
Beijing boosted its total retaliatory levies on U.S. imports from 84% to 125%, effective April 12, describing the Trump administration's tariffs policy as a "joke."
As Bloomberg notes, "With tariffs at levels now set to halt most all trade between the world's biggest economies, the concern now is that the economic fight could spill into other areas of the relationship."
Treasury yields eased after rising earlier in the week at rates not seen in decades. The 10-year yield was on course for its biggest one-week jump since 2001, the 30-year for its largest one-week leap since 1987.
As we've written, the yield on the 10-year U.S. Treasury note is important – it's the basis for interest rates on mortgages and credit cards as well as corporate debt. The 30-year U.S. Treasury bond is the foundation of pension funds' retirement plans.
The Cboe Volatility Index (VIX) was as high as 44.64 on Friday and settled at 37.05 heading into the weekend. A normal range for the VIX is 12 to 20.
At the closing bell, the blue-chip Dow Jones Industrial Average surged 1.6% to 40,212. The broad-based S&P 500 Index bounced 1.8% to 5,363. And the tech-heavy Nasdaq Composite jumped 2.1% to 16,724.
No time to panic
Despite the volatility that comes with and in the aftermath of a stock market selloff, this is no time to panic.
"We remain in the early innings of this global trade regime change, and while the 90-day pause on reciprocal tariffs temporarily reversed the market selloff, it does prolong uncertainty," writes Darrell Cronk of the Wells Fargo Investment Institute.
Cronk explains that "economic data is cooling, company guidance has become cautious, and it's unclear if the Federal Reserve can immediately salvage weakening growth."
At the same time, Cronk sees "an opportunity for long-term investors to add exposure to high-quality" large-cap stocks and mid-cap stocks. The chief investment officer sees value in communication services, energy, financials and tech stocks, too.
Sentiment sours
Preliminary results from the University of Michigan Consumer Sentiment Survey for April reveal another significant decline. Interviews for the preliminary release took place between March 25 and April 8, the day before President Donald Trump announced his 90-day tariffs pause.
The headline index slid to 50.8 in April from a final reading of 57.0 in March. It's down 34.2% year over year. The two main components of the index were both down big: current economic conditions to 56.5 from 63.8 and consumer expectations to 47.2 from 52.6.
Year-ahead inflation expectations rose to 6.7% from 5.0%. This is the highest reading since 1981. Five-year-ahead inflation expectations increased to 4.4% from 4.1%.
The share of consumers expecting an increase in the rate of unemployment surged to 67%, the highest since the Great Recession. The "decline was … pervasive and unanimous across age, income, education, geographic region and political affiliation."
"U.S. consumer sentiment took a big dive in April," writes BMO Capital Markets senior economist Jennifer Lee. "Consumers are really expecting prices to keep rising … This is a problem."
Cool inflation news
The Bureau of Labor Statistics said the Producer Price Index (PPI) fell 0.4% in March, well below a consensus expectation for a 0.2% increase. Core goods excluding foods and energy rose 0.9%.
On a year-over-year (YoY) basis, the PPI slowed to 2.7% in March from 3.2% in February. Core PPI slowed to 3.3% from 3.5%.
"The March PPI report says next to nothing about the inflation outlook," observes Comerica Bank Chief Economist Bill Adams, "which depends overwhelmingly on tariffs." As Adams explains, "The hike in tariffs on Chinese imports offset the partial roll-back of tariffs on imports from other countries, leaving the average U.S. tariff rate about 25 percentage points higher than at the start of the year."
The economist concludes that "inflation will accelerate considerably if the tariffs stay in place." That would leave the Fed in a tough spot: "The Fed’s bar to rate cuts in a stagflationary shock is higher than in a normal growth scare that would lower both demand and prices."
"Uncharted territory" for banks
JPMorgan Chase (JPM, +4.0%) reported a 9% rise in first-quarter net income and earnings of $5.07 per share, well above a FactSet-compiled consensus estimate of $4.63. Revenue was $45.3 billion, also well above an estimate of $43.9 billion.
It's the biggest U.S. bank by assets, which makes JPM one of the most important financial stocks in the world. Investors, traders and speculators are particularly interested right now in CEO Jamie Dimon's and his team's forward-looking commentary.
"We are prepared for any environment," Dimon said in his bank's earnings release. "The most important thing is," he added, "the Western world stays together economically. Chief Financial Officer Jeremy Barnum emphasized "the banking system being a source of strength" in the present context.
J.P. Morgan Securities bank stock analysts provided the context in a recent note: "We are in uncharted territory. There is no historical precedent for the current situation where the existing framework has been upended by the president’s change in policies."
