It was one of the most volatile weeks in terms of trade war developments yet. Within the span of about 48 hours, we saw the U.S. international trade court block the Trump tariffs, an appeals court temporarily reinstate them and Trump claim that China “totally violated” their trade agreement. Earlier this year, that would have caused mass chaos and volatility in both the equity and bond markets. This week, however, the markets largely reacted with a big “meh”.
The S&P 500 traded within a range this week of up 1% to down 0.4%, a far cry from the post-Liberation Day time frame where 3-5% intraday moves were common. It feels like the markets have gotten tariff fatigue and are becoming fine with just ignoring short-term developments knowing that they’re probably going to change again in a day or two. Trump’s decision on Friday afternoon to double steel tariffs from 25% to 50% is a prime example of this. For those looking for some sense of predictability and/or stability in this market, there probably won’t be much for a while. The fact that the markets have started shaking off these developments does create an opportunity, however, for risk asset prices to drift higher in the short-term.
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Overall, May was a solid month for U.S. stocks, but a lot of it has been recovery from the declines of March and April. The S&P 500 and Nasdaq 100 are narrowly positive on the year now, but small-caps still remain in the red. Small-caps are already disproportionately affected by tariffs relative to large-caps and the violent shifts back and forth on trade policy don’t make the situation much easier. Treasury yields moving steadily, though modestly, lower is a good sign for bond market stability and that could be a factor that helps stock prices as we head into the summer months.
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