In the week following President Donald Trump\u2019s \u201cLiberation Day\u201d tariffs announcement, it looked like the stock market had seen a ghost.<\/p>\n\n\n\n
Over the course of seven days following his April 2 announcement, the S&P 500 lost more than 12%, a decline not typically seen outside of extreme events like the Covid-19 pandemic and the subprime mortgage crisis of 2008. That stretch last month also saw the fifth-worst two-day percentage decline since World War II.<\/p>\n\n\n\n
Government bond yields, too, began to creep steadily upward, making it more expensive for the U.S. to borrow money, amid signs that both the substance and erratic rollout of Trump\u2019s tariff plan were testing traders\u2019 faith in the United States\u2019 ability to make timely payments on its debt.<\/p>\n\n\n\n
Stocks around the world sold off, too.<\/p>\n\n\n\n
\u201cApril was an absolutely seismic month in financial markets, as the announcement of US reciprocal tariffs led to a huge global sell-off,\u201d analysts with Deutsche Bank said in a note to clients Thursday. \u201cThe initial moves were truly historic in their speed.\u201d<\/p>\n\n\n\n
With the stock and bond markets blaring red alerts, Trump backed off some of his tariffs on April 9<\/a>, triggering euphoria among investors. After he announced <\/strong>a 90-day pause on the reciprocal tariffs for \u201cnon-retaliating\u201d countries, the S&P saw its best daily performance in nearly 17 years, with a 9.5% gain. At the same time, the sell-off in Treasurys stabilized.<\/p>\n\n\n\n Now, 32 days after the historic Rose Garden speech, stocks have executed a stunning comeback of sorts, with the broader market largely returning to where it was when the \u201cLiberation Day\u201d tariffs were first announced. Volatility in government borrowing costs, too, has leveled off.<\/p>\n\n\n\n The gains are relative: Stocks remain about 6% below their pre-Inauguration Day levels. But some blue chip companies like Apple are still hobbling. The iPhone maker\u2019s stock is down more than 20% since its all-time high last winter, though partly for reasons beyond the president\u2019s policies. Tesla, which is helmed by Elon Musk, a close ally of Trump, is still 40% off its December peak.<\/p>\n\n\n\n Nevertheless, the broader recovery has been significant. According to Dow Jones, the eight trading days through Thursday last week saw the biggest gain for the S&P 500 since November 2020, when markets showed their first signs of recovery from the depths of the Covid-19 pandemic.<\/p>\n\n\n\n And with Friday\u2019s close, the index saw its longest winning streak in 20 years<\/a>.<\/p>\n\n\n\n Experts say the recovery has been fueled by a combination of Trump\u2019s softening tone on tariffs and investors entering an \u201cacceptance\u201d stage that whatever the president ends up saying, tariffs are here to stay in some form or another.<\/p>\n\n\n\n \u201cMarkets are adjusting to the tariffs story and saying, \u2018OK, this has happened, now what do we do about it?\u2019\u201d said Roxanna Islam, head of research at VettaFi, an asset management platform. \u201cPeople are starting to look more forward than backward.\u201d<\/p>\n\n\n\n If flows of money into a popular low-cost investment vehicle are any indication, the <\/strong>recovery has been led by so-called \u201cretail\u201d investors, opportunistic buyers who are more apt to make daily market trades. That group stands in contrast to longer-term investors like 401(k) holders or large institutions, which typically take a more measured, long-term view of investing.<\/p>\n\n\n\n According to the Vanguard investment group, which runs investment vehicles known as exchange-traded funds (ETFs), \u201cbulls,\u201d or net buyers of stocks, outnumbered \u201cbears\u201d (net sellers) by a ratio of nearly 4 to 1 among self-directed investors. The Vanguard ETF saw a $21 billion inflow last month, the most in its 15-year history<\/a> and the fifth-largest amount ever taken in by a fund on a monthly basis, Bloomberg News reported.<\/p>\n\n\n\n \u201cIt would be simplistic to say it\u2019s just retail \u2014 but to a large extent it has been,\u201d said Steve Sosnick, chief strategist at the Interactive Brokers financial group.<\/p>\n\n\n\n The retail investment boom surfaced during the pandemic, when day traders turned to playing markets amid nationwide shutdowns. The trend became best known for fueling mania in \u201cmeme\u201d stocks like GameStop and Bed Bath & Beyond that would see intense run-ups in price amid online speculation about company turnarounds.<\/p>\n\n\n\n The meme-stock days have largely faded, but the impulse to \u201cbuy the dip\u201d \u2014 the popular phrase used to describe when investors bet on stock prices rising after they\u2019ve gone down \u2014 remains, Sosnick said.<\/p>\n\n\n\n \u201cI think the key element has been American investors\u2019 unrelenting faith that every dip is a buying opportunity,\u201d he said. \u201cAnd if enough have this faith, it can make itself true.\u201d<\/p>\n\n\n\n The recovery remains extremely fragile. Stocks are highly sensitive to any hints of trade deals, especially with China, which was excluded from Trump\u2019s initial tariff pause. As recently as Friday, stocks surged<\/a> on a Wall Street Journal report that China was open to addressing Trump\u2019s concerns about its role in the fentanyl crisis as an entry point for both sides softening their trade dispute.<\/p>\n\n\n\n And the overall economic picture remains uncertain. Despite <\/strong>a strong jobs report Friday, other indicators suggest the economy is throttling back. Economic growth was negative for the first three months of the year<\/a>, and while much of that was a function of a surge in imports as businesses sought to get ahead of tariffs, consumer spending, which accounts for more than two-thirds of the economy, fell to a 1.8% quarterly gain after surging to a 4% gain in the fourth quarter last year.<\/p>\n\n\n\n Friday\u2019s jobs report also showed the median duration of unemployment is surging and average hourly earnings growth is slowing.<\/p>\n\n\n\n Companies, too, are lowering their financial guidance for the year, or withdrawing it<\/a> as they await clarity on how Trump\u2019s tariffs shake out.<\/p>\n\n\n\n As a result, overall investment sentiment remains bearish, according to the American Association of Individual Investors (AAII), whose regular survey<\/a> most recently showed that expectations that stock prices will fall over the next six months increased 3.7 percentage points to 59.3%.<\/p>\n\n\n\n \u201cBearish sentiment is unusually high and is above its historical average of 31.0% for the 22nd time in 24 weeks,\u201d the AAII said. \u201cBearish sentiment has now been above 50% for 10-consecutive weeks, the longest period over 50% in the survey\u2019s history.\u201d<\/p>\n\n\n\n Even for people without direct exposure to the stock market, the negative sentiment can have an impact on the broader economy, said Mark Hamrick, senior economic analyst at Bankrate.com.<\/p>\n\n\n\n \u201cThose negative headlines do take a toll beyond those who have a particular stake in the market,\u201d he said.<\/p>\n\n\n\n There are also signs that the \u201cSell America\u201d trade<\/a> is lingering, according to Bob Elliott, CEO of the Unlimited Funds investment group, who noted in a post on X Friday<\/a> that the value of the U.S. dollar remains well below where it was just before Trump\u2019s April 2 tariff announcement, while gold and foreign stocks have been outperforming U.S. equities.<\/p>\n\n\n\n There\u2019s been a \u201crotation away from the U.S.\u201d even with better-than-expected data, Elliott said.<\/p>\n\n\n\n In short, it remains to be seen where the market goes from here.<\/p>\n\n\n\n \u201cIt\u2019s still early,\u201d said Islam, of VettaFi. \u201cThere\u2019s still a lot of that uncertainty.\u201d<\/p>\n\n\n\n