The S&P 500 Index ($SPX) (SPY) Wednesday closed up +9.52%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +7.87%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +12.02%. June E-mini S&P futures (ESM25) are up +9.62%, and June E-mini Nasdaq futures (NQM25) are up +11.90%.
Stock indexes on Wednesday recovered from early losses and rallied sharply after President Trump announced a 90-day pause on reciprocal tariffs to 56 countries. Stocks extended their gains Wednesday afternoon when President Trump said he'd look into tariff exemptions for some US companies.
There was market speculation that President Trump partially relented on tariffs because Wednesday’s upward spike in Treasury yields suggested that a systemic crisis might be brewing, with a wholesale dumping of US assets by foreign investors and countries. Rumors centered on Japan as a big seller of Treasury securities, but there is no doubt that China could dump massive quantities of Treasury securities on the market and spark a US financial crisis if they were so inclined. While President Trump has weaponized tariffs, China and other large countries have the capacity to retaliate with both tariffs and capital since the US has a massive federal budget deficit to finance. The upward spike in Treasury yields might have been a warning shot to the White House that tariffs are not the only game in town.
Stocks initially moved lower on Wednesday as US reciprocal tariffs kicked in. The tariffs have sparked a crisis of confidence in the dollar, prompting the selling of dollar assets. The 10-year T-note yield Wednesday also jumped to a 1-1/2 month high of 4.511% on reports that big investors, possibly Japan, were dumping US Treasury securities in a crisis of confidence in the US.
Stock index futures dropped to their lows early Wednesday after China retaliated against the new US tariffs by imposing 84% tariffs on US goods. The yuan sank to a 17-year low Wednesday against the dollar on the latest tariff news. Europe on Wednesday also announced retaliatory tariffs.
President Trump on Wednesday announced a 90-day pause on higher reciprocal tariffs on 56 nations and lowered the tariffs on those countries to the 10% baseline rate applied to other nations. After China retaliated Wednesday and imposed 84% tariffs on US goods, effective on Thursday, the US raised tariffs on Chinese goods to 125% from 104%. The EU also retaliated against US tariffs Wednesday by imposing 25% tariffs on 21 billion euros worth of US goods sent to Europe, including soybeans, agricultural products, poultry, and motorcycles.
The minutes of the March 18-19 FOMC meeting hinted at stagflation and were bearish for stocks. The minutes showed that most Fed officials viewed "risks to inflation as tilted to the upside and risks to employment as tilted to the downside." Also, various officials said uncertainty could dampen consumption and that a cautious approach was appropriate amid policy uncertainty.
Hawkish comments Wednesday from Minneapolis Fed President Kashkari weighed on stocks and bonds when he said, "The hurdle to change the federal funds rate one way or the other has increased due to tariffs," and that the Fed is less likely to lower interest rates in the face of tariffs given their inflationary impact, even if the economy begins to deteriorate.
Comments Wednesday from St. Louis Fed President Musalem were negative for stocks when he said US economic growth is likely to slip "materially" below trend and the jobless rate will rise over the year as companies and households adjust to prices pushed higher by new import tariffs.
US MBA mortgage applications rose +20.0% in the week ended April 4, with the purchase mortgage sub-index up +9.2% and the refinancing sub-index up +35.3%. The average 30-year fixed rate mortgage fell -9 bp to a 5-1/2 month low of 6.61% from 6.70% in the prior week.
Stocks have been under pressure over the past month due to fears that US tariffs will weaken economic growth and corporate earnings. On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%. Last Wednesday, President Trump signed a proclamation to implement a 25% tariff on US auto imports. The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US. Mr. Trump said the tariffs were "permanent," and he was not interested in negotiating any exceptions. Last Saturday, a 10% baseline tariff for most US trading partners took effect.
The markets are discounting the chances at 19% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from 30% last week.
Market attention this week will focus on US trade policies and whether other nations retaliate against US tariffs. On Thursday, the March CPI is expected to ease to +2.6% y/y from 2.8% y/y in Feb, and the March CPI ex-food and energy is expected to ease to +3.0% y/y from +3.1% y/y in Feb. On Friday, the March final-demand PPI expected to climb to +3.3% y/y from +3.2% y/y in Feb, and the March PPI ex-food and energy is expected to rise to +3.6% y/y from +3.4% y/y in Feb. Finally, the University of Michigan Apr US consumer sentiment index is expected to fall to 54.0 from 57.0 in March.
Q1 earnings reporting season will begin on Friday when big US banks report their results. According to data compiled by Bloomberg Intelligence, the market consensus is for Q1 year-over-year earnings growth of +6.7% for the S&P 500, down from expectations of +11.1% in early November. Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.
Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed down sharply by -3.17%. China's Shanghai Composite Index closed up +1.31%. Japan's Nikkei Stock 225 closed down sharply by -3.93%.
Interest Rates
June 10-year T-notes (ZNM25) Wednesday closed down -1-4.5/32 points. The 10-year T-note yield rose +6.8 bp to 4.361%. June T-notes Wednesday tumbled to a 1-1/2 month low, and the 10-year T-note yield rose to a 1-1/2 month high of 4.511%. Concerns that US tariffs will push the economy into stagflation and keep the Fed from cutting interest rates weighed on T-notes. US trade policies have also caused a crisis of confidence in the US, prompting foreign investors to dump dollar assets, including stocks and Treasuries. In addition, Wednesday's surge in stocks curbed safe-haven demand for T-notes.
Wednesday's March 18-19 FOMC meeting minutes hinted at stagflation and were bearish for T-notes. Finally, hawkish comments from Minneapolis Fed President Kashkari undercut T-notes when he said the Fed was less likely to cut interest rates in the face of tariffs due to their inflationary impact.
European bond yields on Wednesday were mixed. The 10-year German bund yield fell -4.0 bp to 2.591%. The 10-year UK gilt yield rose to a 1-1/2 week high of 4.800% and finished up +17.4 bp to 4.779%.
ECB Governing Council member Villeroy de Galhau said the ECB should lower interest rates "soon" as US tariffs and the fallout on global markets favor such a move.
ECB Governing Council member Rehn said, "The grounds for continuing interest rate cuts in the April meeting have grown clearly stronger based on a holistic assessment of inflation and economic growth."
ECB Governing Council member Holzmann said the ECB should allow uncertainty on global trade stoked by US tariffs to clear before considering any further interest rate cuts.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
US Stock Movers
The Magnificent Seven stocks surged Wednesday after President Trump paused reciprocal tariffs. Tesla (TSLA) closed up more than +22%, and Nvidia (NVDA) closed up more than +18% to lead gainers in the Dow Jones Industrials. Also, Apple (AAPL) closed up more than +16%, and Meta Platforms (META) closed up more than +14%. In addition, Amazon.com (AMZN) closed up more than +11%, Microsoft (MSFT) closed up more than +10%, and Alphabet (GOOGL) closed up more than +9%.
Chip makers soared Wednesday when President Trump announced a 90-day pause in reciprocal tariffs. As a result, Microchip Technology closed up more than +27% to lead gainers in the S&P 500 and Nasdaq 100. Also, Advanced Micro Devices (AMD) and ARM Holdings Plc (ARM) closed up more than +2%. In addition, ON Semiconductor (ON), Marvell Technology (MRVL) and NXP Semiconductors NV (NXPI) closed up more than +21%, and GlobalFoundries (GFS), Intel (INTC), Micron Technology (MU), Lam Research (LRCX), Analog Devices (ADI), and Broadcom (AVGO) closed up more than +18%.
Recently beaten-down travel and leisure stocks rallied sharply Wednesday on the pause in tariffs. United Airlines Holdings (UAL) closed up more than +26%, and Delta Air Lines (DAL) closed up more than +22%. Also, Norwegian Cruise Line Holdings (NCLH) and Expedia Group (EXPE) closed up more than +18%, and Carnival (CCL), Caesars Entertainment (CZR), Royal Caribbean Cruises Ltd (RCL), and MGM Resorts International (MGM) closed up more than +16%. In addition, Southwest Airlines (LUV) and Wynn Resorts (WYNN) closed up more than +14%.
Energy producers and energy service providers recovered from early losses as crude prices surged more than +4% after President Trump paused reciprocal tariffs. As a result, Devon Energy (DVN) closed up more than +15%, and Haliburton (HAL) closed up more than +14%. Also, Diamondback Energy (FANG) closed up more than +13%, and Schlumberger (SLB) closed up more than +12%. In addition, Occidental Petroleum (OXY) and Phillips 66 (PSX) closed up more than +11%, and Baker Hughes (BKR), Valero Energy (VLO) and ConocoPhillips (COP) closed up more than +10%.
Walmart (WMT) closed up more than +9% after reaffirming its Q1 sales forecast of up 3% to 4%.
Gold mining stocks rallied Wednesday, with the price of gold up by more than +3%. AngloGold Ashanti Plc (AU) closed up more than +9%, and Newmont (NEM) closed up more than +8%.
Earnings Reports (4/10/2025)
Bank7 Corp (BSVN), Byrna Technologies Inc (BYRN), CarMax Inc (KMX), Evolv Technologies Holdings In (EVLV), Lovesac Co/The (LOVE), Northern Technologies International (NTIC).
