Trump’s Trade Tariffs: Stocks Rise, But U.S. Companies Demand Concrete Deals

As the market experiences a turbulent yet ultimately beneficial phase, talks of a pivot in President Trump’s approach to China tariffs have provided a temporary boost to U.S. stocks. Yet beneath the surface, a more pressing question looms: will these gains serve as a foundation for lasting trade agreements, or are we merely witnessing a fleeting moment of optimism amidst deep uncertainty?

Recently, U.S. stocks recorded sizable gains, with the S&P 500 index rising by 1.7% in a mere two days, attributed to a more positive outlook from the White House regarding tariffs on China. A pivot indicates that President Trump is potentially less inclined to escalate the ongoing trade battle, alleviating some worries among investors. Furthermore, the President’s assurance that he has no intentions of firing Federal Reserve Chair Jerome Powell has also contributed to a sense of stability on Wall Street.

However, for the stock market rally to gain traction, American companies require much more than just comforting words; they need substantial trade deals that mitigate the threats posed by tariffs. Bond-market participants echo this sentiment, emphasizing that without solid agreements encapsulating a resolution to the tariff challenges, businesses are left exposed to prolonged uncertainty.

The backdrop of this optimism can be traced back to President Trump’s unexpected announcement on April 9, where he revealed a 90-day pause on his expansive “reciprocal” tariffs. Despite this pause, China was not included, and the resulting tit-for-tat tariffs have continued to exacerbate market volatility. Nevertheless, recent shifts in the White House appear to indicate that officials are beginning to consider the perspectives of major U.S. retailers and moderates within Trump’s administration—a shift that has not gone unnoticed by market observers.

Various executives from significant retail giants like Home Depot, Lowe’s, Target, and Walmart reported a productive discussion with the White House regarding tariffs. Their consensus is clear: the ongoing tariffs risk inflating prices and creating shortages of essential goods, potentially backfiring politically. As Jon Brager, a portfolio manager at Palmer Square Capital Management, articulated, the pressure is mounting for concrete trade solutions or companies will face dire consequences.

This underlying tension is compounded by the challenges that large corporations face in securing financing. The current landscape for bond issuance is less favorable, as high-yield companies are finding it increasingly difficult to access loans. Following a robust start to the year, the issuance of new collateralized loan obligations (CLOs) has come to a near halt in recent weeks, leaving businesses more vulnerable than before. Nicholas Elfner, co-head of research at Breckinridge Capital Advisors, observed that the investment-grade market gained some stability, buoyed by strong performances from major U.S. banks, but high-yield bond issuance still lags behind.

As approximately a quarter of companies in the S&P 500 report their first-quarter earnings, the effects of tariffs and the ongoing economic uncertainty have dominated discussions. Earnings growth projections have already been downscaled—now hovering around 10% for the year, a sharp decline from earlier estimates of 14%.

Dissecting the retail sector’s performance, the data reveals notable disparities. While certain areas, like leisure products and luxury goods, have witnessed contraction, sectors involving hotels, restaurants, and broadline retail are showing growth. This inconsistent performance underscores that not all companies are equally equipped to withstand the unpredictability of the tariff environment.

Meanwhile, investors in U.S. Treasuries—arguably the backbone of corporate and household borrowing—remain cautious. A notable divergence exists between equity and bond market reactions to the recent news, highlighting the bond market’s persistent skepticism and fatigue regarding evolving policies. George Catrambone, head of fixed income Americas at DWS, criticized this fatigue while reiterating that concrete conclusions must be reached sooner rather than later, or else real damage to the economy could ensue.

In conclusion, while recent shifts in tone from President Trump have provided a temporary boost to the stock market, the need for concrete trade agreements cannot be overstated. Companies cannot thrive under a cloud of uncertainty; they require clarity and stability to navigate this complicated landscape. Without this, any gains made may prove illusory, leading to deeper economic challenges ahead.