- Equities rebounded after news that Trump was ready to give some countries tariff breaks.
- Tesla led the rally in the tech sectors, gaining over 12%.
- The US business activity index increased from 51.6 to 53.5.
Equities rallied on Monday as risk appetite rebounded after reports that Trump would take a more measured approach to tariffs in April. At the same time, an upbeat business activity report eased fears of a US recession, further boosting risk appetite.
S&P 500 (Source: Bloomberg)
On Monday, markets rebounded after news that Trump was ready to give some countries tariff breaks in April. Initially, investors were on edge as they awaited tariffs on automobiles, pharmaceuticals, and Canadian and Mexican goods. At the same time, Trump has promised a reciprocal tariff on all countries with levies on US goods.
These tariffs might ignite more trade wars, threatening growth in the global economy. Already, earnings expectations have dropped in the US, with most companies seeing a dim future. However, if Trump has softened his stance, then the impact might be less than earlier feared.
As a result,, fears of the US recession and inflation eased, allowing stocks to climb. Tesla led the rally in the tech sectors, gaining over 12%. However, despite the softer stance, Trump still plans to impose duties on many more countries and goods. This will always cast a shadow of uncertainty on economic growth in the US and the global economy. At the same time, it will keep the Fed cautious. Policymakers might choose to keep interest rates at elevated levels due to a surge in inflation expectations.
Meanwhile, an upbeat PMI report showed some bright spots in the US economy, boosting investor sentiment. Recent economic data has raised fears of weaker demand and a slowdown. Data on employment, inflation, and sales have all come in below forecast. Therefore, the upbeat PMI data came as a relief for investors.
According to the flash PMI report, the business activity index increased from 51.6 to 53.5. The major improvement came from the services sector. Meanwhile, activity in the manufacturing sector eased slightly.
Last week, stocks had a difficult time after the FOMC meeting, where policymakers voted to keep interest rates unchanged. Powell maintained his stance, stating that there was no hurry to lower borrowing costs. High rates are bearish for stocks since they make it difficult for businesses to grow. This week, traders will focus on the core PCE price index report for more clues on the Fed’s policy path.
