Stocks See Wild Swings in Run-Up to Tariff Rollout: Markets Wrap

(Bloomberg) — A renewed wave of volatility gripped global markets just days ahead of President Donald Trump’s tariff rollout, with stocks erasing losses in the final stretch of a jittery quarter. As equities bounced, bonds moved away from session highs. Gold climbed to a record.

From New York to London and Tokyo, stocks were hit by intense swings. While the S&P 500 wiped out a 1.7% slide, US shares saw their worst quarter compared to the rest of the world since 2009. Defensive groups outperformed. Energy producers joined a rally in oil as Trump suggested the US may work to curtail crude shipments from Russia. A gauge of the “Magnificent Seven” megacaps extended a quarterly rout to 16% amid lingering concerns of an artificial-intelligence bubble.

 

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It was the first time since the onset of the pandemic in March 2020 that bonds rose and stocks fell in a three-month period. The dollar, long a go-to hiding place during market selloffs, has not been acting as such lately. While the greenback saw a mild gain Monday, it suffered the worst start to a year since 2017.

The Trump administration’s mixed messaging on what new tariffs will be unveiled Wednesday and how they’ll be announced have traders flustered as they try to position around the biggest risk confronting the market in years. 

Trump’s top spokesperson said the announcement would feature “country-based” tariffs, but added that the president is also “committed” to implementing sectoral duties at another time.

“Tariffs will likely continue to drive the market discussion,” said Chris Larkin at E*Trade from Morgan Stanley. “Whether tariffs are more or less rigid than expected could go a long way toward shaping the market’s near-term momentum.”

The S&P 500 rose 0.6% Monday, while still posting its worst month and quarter since 2022. The Nasdaq 100 was little changed. The Dow Jones Industrial Average added 1%. Tesla Inc. led losses in megacaps, while Apple Inc. gained. Newsmax Inc. skyrocketed in its debut session. Vaccine stocks sank as a top regulator left the US Food and Drug Administration.

The yield on 10-year Treasuries declined three basis points to 4.22%. The Bloomberg Dollar Spot Index rose 0.2%. Gold topped $3,100 for the first time.

“Stock-market bulls are hoping for clear skies ahead, as uncertainty itself serves as a drag on animal spirits, consumption, and capital expenditures,” said Jose Torres at Interactive Brokers.

A survey conducted by 22V Research showed 73% of the investors polled don’t think uncertainty will peak on Wednesday.

“It has been a difficult quarter for investors as we try to gauge the impact of tariffs when we don’t even know what the ultimate tariffs will be,” said Megan Horneman at Verdence Capital Advisors. “We should get some clarity this week, but the odds of a recession have increased and consumers are worried about higher prices.”

Most economists still aren’t anticipating the US will fall into an actual recession in the next year, but they do say the chance of an economic contraction has increased. Another worry, in the view of economists and market watchers, is the risk that a slowdown in growth will occur alongside accelerating inflation, a dreaded scenario known as stagflation.

Ed Yardeni of eponymous firm Yardeni Research cut his year-end estimate on the S&P 500 to 6,000 from 6,400, saying Trump’s tariffs have heightened recession risks. The gauge close at 5,611.85 Monday.

“A happy outcome would be that the US would negotiate tariff reductions, but that won’t happen if the US slaps a 20% tariff on all imports across-the-board,” Yardeni said.

Amid all the concern about the economic impacts of tariffs, Goldman Sachs Group Inc.’s David Kostin now expects the S&P 500 to end the year around 5,700 versus his previous estimate of 6,200.

Since the end of February, the US equity benchmark dropped almost 6%.

A big down March is actually quite rare, with the S&P 500 declining more than 3% just seven other times since World War II, according to Jonathan Krinsky at BTIG. Whenever that happened, April closed green for an average gain of 5.92%, he said.

“While we continue to have concerns about the medium-term trend of the market and it’s clearly not going to be an easy month, the set-up for April seems to favor the bulls,” he said.

Keith Lerner at Truist Advisory Services noted that as the economic backdrop weakens relative to consensus expectations, earnings are likely to be reset lower at a time when valuations have improved, but are not compelling. 

“Investors should be more neutral and less on offense relative to recent years given a more mixed risk/reward backdrop,” he said. “Thus, we expect the choppy market environment to persist over the next several weeks and likely months, and we are not likely to see a quick return to new highs.”

A stock-market signal is flashing a warning to investors hoping for a speedy recovery from this year’s sharp equity selloff.

The correlation between individual S&P 500 members — measuring the degree to which they move in tandem — stands near the lowest level in 25 years even after rising this month, according to data compiled by independent strategist Jim Paulsen. 

So far, “we have had a very methodical and almost boring correction,” said Paulsen, whose four-decade career on Wall Street included stints at Leuthold Group and Wells Capital Management. “Correlation is just another component that tells me we haven’t done what we need to do to set us up for the next leg higher.”

“Bottoms don’t happen overnight,” said Mark Hackett at Nationwide. “They require a slow, steady shift in investor behavior. While uncertainty and volatility will continue in the near term, this isn’t a market falling apart; it’s a market fighting through uncertainty.”

For long-term investors, Hackett says this is part of a bottoming process and a buying opportunity, with markets likely to be meaningfully higher over the next 12 months.

“It just might be a fist fight to get there,” he noted.

Stock traders also have their eyes glued to some key technical charts to get a sense of where the market is headed next.

The S&P 500 briefly sank below the first ominous milestone traders were watching at the start of the session — 5,504.65, the intraday low touched on March 13. But the broad equities benchmark quickly reclaimed that level. The question now is whether it stays there.

Technical strategists also recommend keeping an eye on market breadth, looking for more evidence of washed-out conditions. A 10% or less reading in the percentage of stocks trading above their 20-day moving average would be “a good sign of a capitulation,” said Adam Turnquist, chief technical strategist at LPL Financial.

Before the Bell: Tariffs Weigh, Goldman Slashes S&P Target

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.6% as of 4 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average rose 1%
• The MSCI World Index fell 0.2%
• Bloomberg Magnificent 7 Total Return Index fell 0.4%
• The Russell 2000 Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.2% to $1.0810
• The British pound fell 0.2% to $1.2914
• The Japanese yen fell 0.1% to 149.99 per dollar

Cryptocurrencies

• Bitcoin fell 0.1% to $82,430.71
• Ether rose 0.7% to $1,827.88

Bonds

• The yield on 10-year Treasuries declined three basis points to 4.22%
• Germany’s 10-year yield advanced one basis point to 2.74%
• Britain’s 10-year yield declined two basis points to 4.67%

Commodities

• West Texas Intermediate crude rose 2.9% to $71.40 a barrel
• Spot gold rose 1.3% to $3,124.21 an ounce

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