The stock market has experienced a tumultuous few months, with President Trump’s broad and steep tariffs sending share prices into a tailspin. However, as the administration has dialed down its trade offensive, delaying the worst of the tariffs announced on April 2 and promoting a long list of trade deals in the works, stocks have risen, and the unnerving volatility in the government bond market has subsided. On Tuesday, the latest reading of the Consumer Price Index showed a slower pace of inflation in April than economists had predicted, despite widespread concerns that tariffs could have sped up price increases.
Worth an analytical marker:
Per the DXY index (Bloomberg chart below), the dollar is again weaker on a day that government bond yields are higher.#economy #dollar #markets pic.twitter.com/xdFjhPM4O6
— Mohamed A. El-Erian (@elerianm) May 19, 2025
The S&P 500, which came close to hitting a bear market early last month, is now up slightly since the start of the year, after a 0.7 percent gain on Tuesday. Still, investors remained cautious and complained that the outlook remains uncertain, with little clarity on the final level of tariffs. Jeffrey Kleintop, chief global investment strategist at Charles Schwab, said, “I am concerned about the magnitude of the rally we’ve seen coming back.
The market might be too enthusiastic that the trade worries are behind us.”
In May, slight bounce in consumers' confidence in higher stock prices over next year, though level is still low relative to history pic.twitter.com/lp0bq88LjR
— Liz Ann Sonders (@LizAnnSonders) May 19, 2025
Despite the recent surge in the stock market, driven by trade breakthroughs with China and other nations, some Wall Street strategists warn that the rebound may be overextended. Trump’s 10% baseline tariffs, which apply to nearly all trading partners, took effect in April and remain in place.
Stock split this week: Record date announced; 650% return in 1 year, smallcap company https://t.co/Hjgo65ikxI
— ET NOW (@ETNOWlive) May 19, 2025
Market momentum despite tariff concerns
An additional set of reciprocal tariffs that could push rates even higher for some countries was temporarily paused last month for 90 days. Jay Pelosky, founder of TPW Advisory, said, “The tariff cat is out of the bag. Even with the reduction in tariffs on China, we’re still looking at the highest US tariff levels since World War II or earlier—and that’s going to have a negative effect on the economy.”
UBS strategists estimate the effective US tariff rate now stands at roughly 15%, six times higher than the 2.5% rate in January.
Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, warned that “ongoing uncertainty could trigger further bouts of market volatility.”
While many companies reported strong quarterly results this season, management teams expressed uncertainty over tariff-related impacts. Walmart warned it may be forced to raise prices due to increased costs on certain imported goods. Some strategists advise investors to consider defensive sectors like utilities and international equities.
Unlike the Federal Reserve, which has held rates steady, several foreign central banks have cut rates, helping lift overseas markets. Portfolio managers also caution against trying to time the market or reacting to short-term volatility. Tim Urbanowicz, chief investment strategist at Innovator ETFs, said, “Ultimately, we still think it’s an environment where the S&P can tick higher, stocks can do well, but it’s not going to be straight up and to the right.”
