Markets again showed how sharply they react to any news regarding U.S.-China trade relations. Recent statements from President Trump about tariffs stirred investors, initially offering hope for a thaw, only to quickly bring them back to reality. It all started when Trump hinted at a possible reduction of high tariffs and demonstrated a softer stance towards Beijing. Markets perceived this as a long-awaited signal for de-escalation of the trade war, and the reaction followed immediately: U.S. stocks surged sharply. Key indices showed gains: the S&P 500 was up about 2.0%, the tech Nasdaq rose by 2.5%, and the industrial Dow Jones gained about 500 points. Stocks of companies in consumer goods, technology, and communications sectors – those most affected by trade barriers – particularly surged.
Optimism has also spilled over into the bond market: the yield on safe 10-year U.S. Treasury bonds fell to 4.31% as investors felt more confident. Even gold, which typically rises during times of uncertainty, reacted to this burst of positivity: its prices dropped slightly, reflecting a temporary easing of investor concerns about risks. An additional calming factor was Trump's assurance that he does not intend to fire Fed Chairman Jerome Powell, which alleviated some fears about political pressure on the central bank.
However, the euphoria proved short-lived. Soon, Treasury Secretary Bessent made an important clarification: the president did not promise to unilaterally lower tariffs, and real negotiations with China are still far off. This sobering statement quickly cooled investor enthusiasm, reminding them that a quick resolution to trade disputes is not to be expected. The initial surge in stocks slowed down, showing just how fragile this optimism, based solely on words, was.
And while markets oscillate between hope and disappointment, reacting to every rumor and statement, the tariff policy itself continues to exert pressure on the real economy. Fresh data from April 2025 paints a less than rosy picture. The growth of business activity in the private sector of the U.S. has slowed, while prices for goods and services have surged at the fastest pace in the past year. Entrepreneurs directly link this to the impact of tariffs, especially in the manufacturing sector. Tariffs are also hitting trade: export orders have noticeably dropped, as American goods have become more expensive for foreign buyers. Although domestic sales have increased in some areas, external demand has clearly weakened. The service sector has also felt the cold breath of uncertainty: the growth of new orders, especially from abroad, has sharply slowed as clients fear instability. Moreover, tariffs are fueling inflation. Producer prices surged to a high not seen since August 2022, and these increased costs are being passed on to consumers, raising retail prices. A similar story is true in the service sector – costs are also rising there, forcing firms to increase prices.
This entire situation – rising costs, supply chain issues, vague growth prospects, and a decline in export demand – undermines business confidence. Both manufacturers and the service sector have become much more pessimistic about the future, and production expectations have fallen to their lowest level since autumn 2022. As a result, we see a classic picture: financial markets are driven by expectations and react instantly to any signals from Washington, creating short-term volatility. However, behind these daily fluctuations lies a deeper and longer-term problem – the real impact of tariffs on economic growth, trade, and prices. This uncertainty related to trade policy continues to be a significant drag on business, and until a stable solution is found, the economy and markets are likely to continue experiencing such 'trade swings'.