Market Recap – Monday, April 14, 2025
US Equities Close Higher Amid Relief Rally and Tariff Uncertainty
US equities ended the day higher, following a modest midday softness. The S&P 500 gained 0.79%, and the Nasdaq advanced 0.64%, continuing their recent positive momentum. Despite some weakness earlier in the week, both indexes posted strong weekly gains, with the S&P 500 achieving its best weekly performance since November 2023. Outperformers today included pharma/biotech, banks, insurers, and semiconductors, while underperformers included airlines, apparel, and semis.
Relief Rally: The market's upside was largely driven by positioning and technical dynamics, with traders responding positively to the tariff exemption on electronics announced on Friday. Although Trump administration officials quickly clarified that the tariff relief is temporary and sector-specific tariffs, including on semiconductors, remain in place, the exemption sparked optimism. Additionally, the possibility of further tariff exemptions, particularly for the auto sector, added to positive sentiment. The relief rally also benefited from the recent bond market stabilization, after a significant yield backup last week.
Tariff Uncertainty: Despite the temporary tariff exemptions, the uncertainty surrounding the ongoing trade war remains a key theme. The US-China trade tensions continue to escalate, with China raising tariffs on US goods to 125% and signaling further retaliation. This uncertainty, along with tariff-induced inflation risks, is adding volatility to market sentiment. However, the recent rally has provided some relief for investors as they await more clarity on potential off-ramps in the trade war.
Economic Data and Fedspeak: The NY Fed's Survey of Consumer Expectations showed rising inflation expectations, with a 0.5% increase in short-term inflation expectations for the year ahead. Consumer sentiment also deteriorated, with expectations of higher unemployment rising to the highest level since 2020. In Fedspeak, Governor Waller reassured markets that the Fed remains prepared to respond to market instability, while other officials, including Collins and Williams, expressed concern about the long-term effects of tariffs on inflation and growth.
Corporate Earnings and Updates: The first round of Q1 earnings kicked off with mixed results. JPMorgan posted strong earnings, particularly in equities trading, while Wells Fargo faced headwinds in net interest income. Apple was a notable winner from the tariff exemption, with production expected to ramp up in India and Vietnam. Other companies, such as Nvidia, reported updates on production shifts to the US for AI supercomputers. Meanwhile, some companies, including Southwest Airlines, warned of uncertain outlooks due to the broader macroeconomic environment.
Here’s Our Take
The market remains in a delicate balance, as the relief rally continues, bolstered by technical dynamics and the temporary tariff exemptions. However, significant risks remain due to the ongoing trade war, with the potential for further tariff hikes and regulatory scrutiny on big tech. Investors should remain cautious, focusing on high-quality companies with strong fundamentals and clear guidance, especially as earnings season continues. While the recent rally provides some respite, the uncertainty around trade policy, inflation, and economic growth could pose challenges in the months ahead.