SPX: the absurdity of tariffs

Tariffs-narrative continues to shape the sentiment of investors on the US equity markets. The high volatility continues to be the predominant way of price movements, ranging from deep pessimism to higher optimism. The reality is that no one is sure what to trade and in which direction. Markets are extremely unhappy in times of high uncertainty, like the tariff-time currently is. Another week with extreme moves is behind the market. The S&P 500 reached the lowest weekly level at 4.840, but soon realized that this might be too low for current conditions of the US economy. Then the news hit the market that US tariffs will be delayed for the majority of countries for up to 90 days, and the market suddenly entered into an optimistic mood, reaching the highest weekly level at 5.480. This occurred at Wednesday's trading session, where S&P 500 gained around 10% within one day. For the S&P 500 this could be treated as highly extreme movement, but it shows how much nervousness is within investors at this moment.

One of few reactions on the extreme volatility of US equity markets came from Susan Collins, head of the Boston Fed, who noted that “markets are continuing to function well” and that the Fed would be prepared to address chaotic conditions on the market, if needed. However, there is no indication that the Fed will react at this moment, and whether current developments will have any effect on their decision on rate cuts during the course of this year. The next FOMC meeting is scheduled for May 6-7th.

At this moment, the long term investors should not be worried, as this absurdity will come to pass one day, and US equities will continue to follow the growth of the US economy. Short term investors and traders will find this period of time as highly challenging. This sentiment will, unfortunately, continue for some time in the future, until the final tariffs-deal is set or dismissed.