According to Bloomberg, for Donald Trump, the stock market rebound indicates that Wall Street favors tariff policies. However, investors say they are just waiting for the U.S. president to change his mind.
Despite Trump's promise to impose more tariffs on multiple countries worldwide, from Canada and Brazil to Algeria, the S&P 500 index continues to reach new highs. Trump stated in an NBC interview: "I believe these tariffs are widely welcomed. The stock market hit another record high today."
However, traders and strategists have vastly different views. They expect that these tariffs will not be fully implemented, at least not as harshly as Trump has threatened. It is this confidence that Trump will change his mind, as he did after "D-Day," and the belief that this week's statements are merely negotiation tactics that make the market indifferent to the latest escalation of the trade war.
"Trump usually opens negotiations with maximalist rhetoric, but the ultimate policy outcomes are often more moderate," said Patrick Armstrong, investment director at Plurimi Wealth LLP. "The market's relatively muted response reflects this skeptical attitude."
Since Trump sees market support for his economic policies, the question arises: why would he change his mind? It was in April this year, amid rising bond yields and the NASDAQ 100 index entering a bear market due to massive sell-offs, that the tariff policy was paused.
A sign of traders' decreasing sensitivity to tariffs is the sharp decline in volatility indicators. The volatility index (VIX) has dropped to its lowest level since February this week, and a similar volatility indicator in the bond market has also fallen to its lowest level since 2022.
For some, this is a warning sign of investors becoming overly exuberant. At an event in Dublin, JPMorgan CEO Jamie Dimon stated that the market is becoming complacent, and the Federal Reserve may even have to raise interest rates.
S&P 500 futures fell 0.6% in early trading on Friday, suggesting a slight pullback for the index after reaching record highs. Trump also told NBC on Thursday that he is considering imposing a general tariff of 15% to 20% on most trading partners.
Panmure Liberum strategist Joachim Klement believes that investors underestimate the risks of Trump's policies. He estimates that even if tariffs remain at current levels, they will exacerbate inflation and harm the economy.
"This will inevitably impact corporate profit margins and revenue growth," he said.
Currently, the market price trend does not show much concern, with speculative assets like Bitcoin and AI-related stocks continuing to soar. Bank of America strategist Michael Hartnett stated that there are no concerns about the economy or stock valuations in client feedback.
Bank of America says clients are betting that the stock market will rebound before summer, followed by a pullback.
"The market has perfectly digested expectations of an economic soft landing and a significant reduction in tariff risks, which seems completely disconnected from reality," said Vantage Markets analyst He Bi Yu in Sydney. "A pullback is highly likely."