Back in action

The S&P 500 is up 0.1% for the week coming into today, yet that small change belies the huge swings already seen this week. On Monday the S&P 500 declined 2.4%. On Tuesday it soared 2.5%. The same headlines that triggered Monday’s selling — threats to the Fed’s independence and China issuing retaliatory trade threats — formed the basis for the market’s strong rebound on Tuesday.

Specifically, a view emerged that the president was only laying the groundwork for placing the blame on Fed Chair Powell if the economy weakens because of trade matters, and Treasury Secretary Bessent indicated that he expects the China tariff issues to de-escalate in the near future.

Market participants liked the context of these views even though they lacked substance. President Trump, though, put some meat on the bone, so to speak, when he said late yesterday that he has no intention of firing Fed Chair Powell. 

That was an especially pleasing declaration, which was accompanied by a contention from the president that he won’t play hardball with China and that China’s tariff rate will come down substantially (but not to zero) if they can reach a deal.

To be sure, when you start with a 145% tariff rate, there is ample room for a substantial cut. It would be substantial if the rate was cut to 70%, but that would still be an onerous tariff rate; therefore, the uncertainty remains as to what “substantial” ultimately means, when the negotiations will take place, and how long it will take to implement any changes. Treasury Secretary Bessent reportedly said it could take two to three years to work out a comprehensive trade deal with China.

That matters little for the time being. What matters to the market now is the change in tone with respect to Fed Chair Powell’s position and the administration’s potential dealings with China. The market’s sense of hope is embedded in the equity futures market, in the Treasury market, and in the U.S. Dollar Index.

Currently, the S&P 500 futures are up 140 points and are trading 2.6% above fair value, the Nasdaq 100 futures are up 575 points and are trading 3.1% above fair value, and the Dow Jones Industrial Average futures are up 791 points and are trading 2.0% above fair value. The 10-yr note yield is down 10 basis points to 4.29%, and the U.S. Dollar Index is up 0.2% to 99.12.

“Buy America” is back in action, but will that remain the case? That is the question, and it looks apparent that the Trump administration holds the answer(s) for the immediate future. It will be the economic and earnings data in the coming months, though, that will be the guidepost.

Both will have some influence in today’s session along with the $70 billion 5-yr note auction results at 1:00 p.m. ET. The preliminary April S&P Global U.S. Manufacturing PMI (prior 50.2) and U.S. Services PMI (prior 54.4) will be released at 9:45 a.m. ET, followed by the March New Home Sales Report (Briefing.com consensus 684,000; prior 676,000) at 10:00 a.m. ET. The Fed’s Beige Book is out at 2:00 p.m. ET.

Separately, there have been a good number of earnings reports since yesterday’s close. Most were better than expected, including the results from Boeing (BA), Capital One (COF), Norfolk Southern (NSC), and GE Vernova (GEV).

Tesla (TSLA) also reported, yet its report was a disappointment. That hasn’t deterred the stock, however. Shares of TSLA are up 7%, responding favorably to Elon Musk’s announcement that he will be curtailing his DOGE work to one or two days per week.

Investors like the implication of Mr. Musk turning more of his attention back to Tesla, just as the market likes the implication of the Trump administration adopting a more conciliatory tone on two key issues that have clearly mattered greatly to the market.

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Originally Posted April 23, 2025 – “Buy America” back in action