Last Wednesday, President Trump said on Truth Social to “be cool,” as everything is going to work out well. He added, “THIS IS A GREAT TIME TO BUY!!!” Whether the President “moved the market” or not, stocks staged a strong overall recovery with a big Wednesday and Friday surge. NASDAQ rose 7.3% for the week, the S&P rose 5.7% and the Dow was up 5%.
The main market motivator was a 90-day pause in most tariff increases announced Wednesday, fueling a 2,963-point Dow rise. Some credit should also be given to the President for pushing crude oil prices to their lowest level in four years, aided by worldwide recession fears. The problem is that prices are so low that production in the Permian Basin may be cut.
Treasury Secretary Scott Bessent has emerged as the President’s primary spokesperson for this more moderate trade policy, replacing Commerce Secretary Howard Lutnick, and Bessent has already been labeled the “Don’t Worry, Be Happy” spokesman. Initially, Scott may have been happy because U.S. Treasury yields dipped below 4% in early April, making his job of managing the federal deficit and Treasury refinancings much easier. However, Treasury yields resurged to 4.5% last week on international selling pressure, so Secretary Bessent came out and said that such fluctuations were “normal.” Fortunately for Scott, there were some more successful Treasury bond auctions held last Wednesday and Thursday.
Here are the most important market news items and what this news means:
- President Trump removed tariffs on technology items after likely being guided by Apple’s Tim Cook, and other business leaders are likely advising the White House on whether or not other tariffs should be removed. Chinese President Xi Jinping, during a visit to Vietnam, warned that U.S. protectionism will “lead nowhere,” implying there might be a thaw in U.S. and China trade relations. Right now, the U.S. has a 145% tariff on Chinese goods, while China has a 125% tariff on U.S. exports.
- Trade barriers are falling, and Kevin Hassett, the head of the White House’s National Economic Council, said that the Trump Administration is now negotiating with 130 countries. It appears that most reciprocal tariffs will be declining and that the net result will be free trade. However, the 10% tariff on all goods is expected to persist, as well as a 25% tariff on non-U.S. parts and most foreign vehicles.
- Hassett also declares that the U.S. is not headed into a recession, despite the fact that first-quarter GDP will be distorted by the dumping of goods as well as surging gold imports. Since both the CPI and PPI were negative in March, aided by lower crude oil prices, deflation is spreading and may persist, especially if retailers “dump” their excess goods on consumers.
- The European Central Bank is expected to cut key interest rates again this week, so the collapse in global interest rates persists. The European Union (EU) is not unified. After election meddling in Romania, France, and Italy, the latest interference pertains to banning two conservative media outlets in Poland. As a result, Brussels continues to cling to power and influence the internal politics of member EU countries.
- I stand by my earlier prediction that Italy could become the 51st state in the event the EU breaks up from its political meddling. Italian Prime Minister Giorgia Meloni will be meeting with President Trump on Thursday, and the EU is fearing that Italy may secure a special deal with the U.S., which will undermine the EU’s authority. Meloni has rebuffed Britain and France by refusing to send troops to Ukraine and remains fiercely independent. Giorgia Meloni also has a very strong relationship with Elon Musk, so it will be interesting to watch those two interact and see if Italy secures any special deals.
Overall, there is no doubt that there will be ripple effects from the Trump Administration’s trade war with China. It is imperative that the velocity of money picks up if news breaks on tariffs diminishing and/or the Fed cutting key interest rates. In the meantime, since the selling in the stock market has been so severe and on high trading volume, it appears that much of the selling pressure is starting to be exhausted. The good news is that the stock market can now refocus on quarterly earnings announcements, which should be excellent.
