US share markets had one of their best days in history yesterday after President Donald Trump made a U-turn on the reciprocal tariffs.
The S&P 500 Index rose 9.5% which was its highest single-day gain since 2008. Moreover, it was the third highest single-day gain for the index since World War 2 with the remaining two coming during the 2008-2009 Global Financial Crisis.
The tech-heavy Nasdaq Composite rose 12.2% which was the highest since 2001 and the second-highest single-day gain ever. Over the last couple of weeks, Trump’s tariffs led to a crash in US shares so the announcement of a 90-day pause came in as a big relief for markets.
US share markets rally as Trump pauses tariffs
According to Trump, he paused the tariffs because people “were getting a little bit yippy.” He added, “They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid, unlike these champions, because we have a big job to do,” the president said while standing with auto racing champions.
While the President talked about being “flexible” in politics, he stressed, “No other president would have done what I did. No other president,” while adding “And it had to be done.”
Trump also said that he listened to JPMorgan CEO Jamie Dimon’s interview earlier in the day wherein he talked about the possibility of a recession due to the tariffs. “He’s very smart and … a genius financially, he’s done a fantastic job at the bank,” said Trump of Dimon.
Economists raised the odds of a recession
Notably, several economists raised the odds of a US recession amid Trump’s reciprocal tariffs. In his annual letter, Dimon said, “Whatever you think of the legitimate reasons for the newly announced tariffs – and, of course, there are some – or the long-term effect, good or bad, there are likely to be important short-term effects.”
Just ahead of Trump’s announcement on pausing the tariffs, Goldman Sachs raised the odds of a US recession within the next 12 months to 65% while predicting a GDP decline of 1%. However, the firm had to change its outlook soon after. “Together, these tariffs are likely to sum to something close to our previous expectation of a 15 [percentage point] increase in the effective tariff rate,” said Goldman chief economist Jan Hatzius in a note.
He added, “As a result, we are reverting to our previous non-recession baseline forecast with GDP growth of 0.5% and a 45% probability of recession.”
How did analysts react to the pause on tariffs?
Analysts welcomed the pause on tariffs even as some advice not getting carried away. “This is the pivotal moment we’ve been waiting for,” said Gina Bolvin, president of Bolvin Wealth Management Group. Bolvin added, “The immediate market reaction has been overwhelmingly positive, as investors interpret this as a step toward much-needed clarity.”
Morningstar’s chief U.S. market strategist Dave Sekera said, “It’s still too early to signal an all clear.” He added, “Trade negotiations have yet to start and once they do, there will be positive and negative headlines as each party positions itself to extract the maximum amount of concessions possible.”
David Kelly, chief global strategist at JPMorgan Asset Management, however, cautioned “This embrace of tariffs isn’t over yet, and if we stick with even the level of tariffs that we’re at right now, after this 90-day pause, that is still quite damaging to the U.S. economy.”
Trump has said that more than 75 countries have reached out for trade deals even as the White House declined to provide any specifics.
Dan Niles of Niles Investment Management sees the S&P 500 Index rising towards 5,700. “Luckily, we know where the Trump put is, quote, unquote, down at these levels. But you know eventually earnings are going to matter and I don’t like investing when earnings are going down,” said the fund manager.
Trump raised the tariffs on China
Meanwhile, while Trump lowered the tariffs on most countries to 10%, he increased the tariffs on China to 125%. Apple sources the bulk of its goods from China and is seen as among the worst hit from Trump’s tariffs. According to Rosenblatt Securities, iPhone prices could rise by around 43% from the tariffs. The brokerage estimates that the price of the iPhone 16 Pro Max would rise to around $2,300 up from $1,599 that it currently costs while the cheapest iPhone price could rise from $799 to $1,142.
Notably, companies like Apple would either need to raise product prices or pass on the tariffs to customers. Alternatively, they would need to absorb them – either fully or partially. Companies would be hard-pressed between the two options and risk losing some sales or taking a hit on their margins.
While Apple has gradually diversified its supply chain to countries like India and Vietnam, China is still its biggest sourcing destination. Wedbush Securities analyst Dan Ives estimates that 90% of iPhones are made in China. Similarly, he estimates that over 50% of Mac products and between 75% and 80% of its iPads are produced in the Communist country.
US shares are down in premarkets today
Meanwhile, after the stellar rally yesterday, futures point to a weak opening for US share markets today. Despite yesterday’s gains, the S&P 500 is in the red this month as markets continue to brace for the uncertainty regarding tariffs.
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Mohit Oberoi
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