- The S&P 500 had a volatile week filled with wild fluctuations but ended higher.
- The White House announced tariff exemptions on smartphones and computers.
- Goldman Sachs reported upbeat earnings, raising hopes of more positive reports.
Equities rose on Monday, extending gains from the previous week after Trump exempted some tech goods from import tariffs. At the same time, a solid start to the first quarter earnings season boosted stocks. However, risk appetite remains low as the trade war between China and the US continues.
S&P 500 volatility (Source: Bloomberg)
The S&P 500 had a volatile week filled with wild fluctuations but ended higher. The declines during the week came after the US imposed reciprocal tariffs on most of its trading partners. This move caused panic as investors worried about a likely recession. As a result, most fled to safe-haven assets like gold.
However, the trend swiftly reversed when Trump announced a 90-day pause on these tariffs. Furthermore, optimism increased on Friday after the White House announced tariff exemptions on smartphones and computers. The announcement led to a rally in most tech stocks, led by Apple. Nevertheless, equities remain down for the year.
Further support for equities came after a solid start to the first quarter earnings season. Goldman Sachs reported upbeat earnings, raising hopes of more positive reports. However, earnings expectations have dropped from 12.2% at the start of the year to 8.0%. Therefore, better-than-expected earnings would come as a surprise, boosting equities.
Elsewhere, market participants paid attention to US data. The CPI report last week revealed that inflation fell by 0.1%. Meanwhile, forecasts had shown a 0.1% increase. Additionally, wholesale inflation unexpectedly dropped by 0.4%. Another report on Friday revealed a sharp drop in consumer sentiment due to recent tariffs. The downbeat figures increased pressure on the Fed to lower borrowing costs.
However, inflation expectations continued climbing as consumers priced increased price pressures due to tariffs. The Fed has a difficult task of controlling inflation while ensuring growth remains steady. However, the ongoing trade war between the US and China might force policymakers to ignore inflation.
Fed’s Christopher Waller said on Monday that the central bank would prioritize growth in case of a recession. Market participants will watch Powell’s speech this week for more clues. Additionally, the US retail sales report will show the state of consumer spending. Meanwhile, developments in US trade policies will keep shaping market trends.
