Tuesday, the S&P 500 edged back into positive territory for 2025. That’s remarkable given that on April 7, the widely followed stock market index was showing a gut-wrenching 21% decline from its record high on Feb. 19.
The so-called Magnificent 7 tech stocks also have returned to their prior glories after looking anything but magnificent in the first part of the year.
To refresh your memory, it has been less than 40 days since panicked Americans looking at their 401(k) balances were worrying that their planned retirement suddenly was further away than they thought. You may recall the widespread feelings of systemic instability that took up news headlines in early April when the stock market saw wild intraday swings, mostly in the direction of down. Given all the talk about the probability of a severe recession, some individual investors of our acquaintance decided to hedge their bets and move out of stocks. That move did not prove to be smart, at least at this writing, serving as a reminder of the common wisdom dispensed by financial professionals that you are better off doing nothing in market downturns.
If you are a fan of President Donald Trump, you will see all of this as evidence that Democratic and establishment panic, as enthusiastically amplified by Trump haters in the media, proved overblown. Certainly, the 2.3% April rise in year-over-year consumer prices, a slight reduction in rate from March, suggested that fears of an inflation surge in the aftermath of Trump’s “Liberation Day” tariffs have not occurred, or at least not yet. Egg prices — the source of many a fevered local news report — were down in April too and so was gasoline, which is now down 12% at the pump, year over year. Of late, trade deals have been back in the news with deals filtering out from Trump’s visit to the Middle East, including a new deal with Saudi Arabia for the chips maker Nvidia, now flying again after a serious dip, and a promised investment of some $600 billion by the Saudis in U.S. companies. Economists are talking more enthusiastically again about the possibility of an interest rate cut, something regarded as highly unlikely just a few weeks ago.
It is incontrovertibly true that things are much better than they looked in early April and that some have benefited from what turned out to be a buying opportunity. We’re glad for that. And we’ll allow that those who wish Trump to fail each and every day can be reluctant to embrace data that suggests otherwise. But before anyone gets over-excited, let’s stipulate that much of this rosy picture was formed from the pixels of Trump backing down from his previously announced policies, especially when it comes to egregious tariffs.
More accurately, the newly positive change in your 401(k) has to do with the inability of presidents to ignore market sentiment and live to tell the tale. Trump was slow to read the tea leaves, but he is an eleventh-hour survivalist and once he finally listened to the market’s commands, he sparked a rally of relief that the landscape of international trade has not been catastrophically upended.
Market-wise, we got back to pretty much where we started. And that begs the question: What was the point of Trump’s tariff comings and goings, beyond goosing sales of antacids?
We don’t see much of one. It’s certainly true that the markets have fallen and recovered quickly before (see the advice above), rising from its 2009 and 2020 lows in a matter of days. But those recoveries were not driven merely by presidential retreat but by changes in governmental monetary policy and other factors external to the president of the United States. At the moment, though, individual investors are watching their account balances ebb and flow based mostly on the whims of a volatile president applying and removing tariffs. We’d prefer it to be about economic fundamentals.
Sure, a Trumpian argument can be made that manufacturing chaos can have desirable effects when it comes to negotiations with trading partners. American media has a habit of focusing only on the U.S. impact of such economic whiplash when, in reality, other countries are often more vulnerable to instability. So if you believe (and we do not) that the U.S. president’s responsibilities begin and end at the U.S. border, then within the narrow lane of transactional self-interest, that case exists.
But there is scant evidence that anything lasting has been achieved by all of this uncertainty. “Was the turbulence of the last several weeks worth an extra $30 billion a year, or 0.1% of GDP,” asked Reuters columnist Jamie McGeever Tuesday, citing Yale Budget Lab figures that suggest those “beautiful tariffs” don’t raise a significant amount of deficit-reducing money, despite all the pain they cause. Simply put, the Yale figures take the amount raised by Trump’s new tariffs and then subtract their projected negative impact on growth. There is not much left.
So not worth it at all, say we.
It’s not as easy to put a price on the loss of confidence in American leadership and the international frustration with Trump but those matters have real economic and geopolitical impacts, not all of which are presently visible. But that bill is coming with every empty seat from Europe to America this summer, every international student who chooses to study elsewhere and every new trade deal that ignores the United States.
Hubristic and shortsighted, Trump may have been gifted a free Boeing 747 worth $400 million from the ever-expedient Qataris, but you can be sure that bill is coming too. It will have to get paid, one way or another.
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