This was the wildest week we have had since the pandemic hit. In short, stocks rallied, Treasuries languished, the dollar plunged, and gold prices surged. It was all related to the ups and downs of the tariff war that culminated with a stunning announcement by President Trump on Wednesday that he is pausing the reciprocal tariff for most countries, except China, for 90 days to allow time to negotiate new deals. In the meantime, a 10% baseline tariff rate will still apply for all countries.
The S&P 500, which saw a low of 4,835.04 on Monday, hit a high of 5,481.34 on Wednesday before settling the week at 5,363.36. Nine of the 11 S&P 500 sectors scored gains this week, none bigger than the information technology sector (+9.7%). The two losers were energy (-0.4%) and real estate (-0.2%). The former was impacted by demand concerns, while the latter lagged on the spike in interest rates.
The stock market was overjoyed on Wednesday by the 90-day pause announcement and engineered a stunning relief rally that was exacerbated by short-covering activity. The S&P 500 logged a 9.5% gain, its third-largest single-day gain since World War II, while the Nasdaq Composite soared 12.2% for its biggest gain since 2001. A sizable portion of those gains were given back in Thursday’s session before some renewed buying interest helped cut the losses on Friday. The sticking point for many was the realization that a 90-day pause is still only a pause, and there is no certainty that a deal will be reached with all countries. Moreover, the baseline 10% tariff rate is still significantly higher than before, and the tariff rate for China is debilitating from a trade standpoint.
As for China, the tariff sparring hit a fevered pitch this week. President Trump ramped up the tariff rate for imported Chinese goods to 145%. China came back on Friday and said it is implementing a 125% tariff rate on imported U.S. goods and will be ignoring any further tariff actions by the U.S. The respective tariff rates should effectively bring trade between the rivals to a standstill, which will have knock-on effects for supply chains and business inventories.