The stock market had a huge day yesterday, with the S&P 500 rising 9.5% in one of the biggest swings on record. This is the third largest one-day increase since the Second World War. As good as the news is, experts caution that this rebound might be short-lived. Continuing uncertainties regarding U.S.-China trade negotiations and the overall state of investor sentiment spell trouble.
To get an idea of how bad Jeremy Siegel, WisdomTree’s chief economist, thinks today’s market climate is. Despite this relatively calm policy environment, he further observed that many investors are still traumatized by the first wave of tariffs introduced by then-President Donald Trump. The effects of these tariffs were huge, raising the level of trepidation in the market participants.
Siegel explained the recent rally is an encouraging sign. It doesn’t necessarily mean that the time is right for investors to take a healthy step back into riskier assets. “We’re not out of the woods on the tariff,” he stated, emphasizing that the market’s recovery is fragile.
With the S&P 500 closing in the red for April, the index is now down 11% from its late March record peak. Siegel predicted that the S&P 500 won’t see its February high again for quite a while. Relatedly, many investors are still climbing out from the fallout of the tariff debacle. “It is good to the extent that he has 75 countries he will be negotiating with, but the shock of what happened, I don’t think you can get that out of consumers’ mind or investors’ mind for quite a while,” he explained.
President Trump recently announced a pause on reciprocal tariffs, which some interpreted as a potential thaw in U.S.-China trade relations. Siegel cautioned that this announcement should not be confused for an overall fix. Trump raised tariffs on imports from China to 125% “effective immediately,” citing China’s lack of respect for global markets. He noted that the 10% tariff appears to be permanent and is five times higher than the tariff levels before Trump’s presidency.
China, for its part, has retaliated in kind, raising its average tariff rate on imports from the U.S. to 84%. As the U.S.’s third-largest trading partner, these recent developments hold deep implications for each economy.
As we noted last month, July 9 is a make or break date for investors. Look for significant negotiations and/or circumvention of tariffs to occur around that time. Siegel remarked, “We’ll see what gets negotiated. It definitely will have to be negotiation with China. I don’t know whether Trump holds as many cards as he thinks he holds.”
Talks continue, and the market turbulence has not abated. Doubt has been cast on the impact of these negotiations on both investor confidence and overall market performance in the months ahead.
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