As far as markets are concerned, Wednesday was last week’s ‘Big Day’: The S&P 500^® Index added 9.5%, the Nasdaq Composite added 12.2% and money flowed fastest and most furiously into sectors that have either a risk-on feel, a cyclical orientation, or both. International markets spent Thursday catching up to their U.S. counterparts, and for its part, and the U.S. treasury market went from “terrible” to merely “uncomfortable” on Wednesday. Of course, the reason for this sudden burst of optimism was a late-day announcement by the White House that it would implement a 90-day pause on nearly all reciprocal tariffs announced on April 2 and instead default to 10% for any country that has so far held its fire and chosen not to retaliate.¹ 

But for my money, Monday might have been the most interesting session of the week. That was the day that news of a 90-day pause first broke, announced on X by someone calling themselves ‘Walter Bloomberg’ (a pseudonym designed to capture the attention of trading professionals for sure). The fictional Mr. Bloomberg’s pronouncement vaulted U.S. markets from a loss of around 4% to a gain of around 4% in mere minutes — a swing of more than 8% in a very (very!) short period of time. The White House tossed a few hundred gallons of cold water on that blaze by declaring Monday’s pause announcement as fake news about an hour later, but stocks still finished the day mostly flat, and the healing had begun.

Was Monday’s announcement a trial balloon floated by the administration to assess how markets might react if indeed there was a 90-day pause? Seems like a stretch, but who knows? In today’s media-saturated and super-sensitive trading environment (and with an incredibly media-savvy administration now receiving its mail at 1600 Pennsylvania Ave.), it’s hard not to at least entertain the idea. But it almost doesn’t matter, because whoever ‘Walter Bloomberg’ really is, Monday’s fake news rally turned out to be a perfect dress rehearsal for the one that accompanied Wednesday’s real-deal 90-day pause.

This is all at least somewhat reassuring. At a minimum, it reignites hope that at least a portion of the very aggressive tariff schedule introduced by President Trump to the world on April 2 might, at least in some cases, have indeed been as much about creating negotiating leverage as it was about punishing U.S. trade partners who have the misfortune of running a significant trade deficit with the United States. And that’s a positive, not least of which because it creates a much-needed off-ramp for what has almost universally been seen as a damaging trade war that could eventually tip the U.S. — and perhaps the whole world — into recession.

On the other hand, it’s worth remembering that relative to history, even Wednesday’s default 10% represents a big ratcheting higher of tariffs that could still generate inflation, slow consumer demand, or both. Moreover, Wednesday’s pause also included a big hike in tariffs against the one country that has so far responded aggressively — China. Not coincidentally, China is also the country with the single-biggest bilateral trade deficit with the U.S., meaning that the proposed tariff of as much as 145% enacted against China will by definition still have a bigger impact on trade than any other single-country sanction can or even could, and that’s true whether you’re talking about the amount of revenue collected at the border, the pressure on corporate costs, the potential for rising consumer inflation, or a cooling of aggregate demand. (And that’s also blind to any retaliation coming out of Beijing, which so far looks far less than willing to negotiate on the President’s terms.) 

So, while Wednesday’s announcement has ratcheted tensions down by a notch or two, essentially what the administration has done is focused its attention more clearly — maybe almost exclusively — on China. If thus isolating The Middle Kingdom ultimately results in a leveling of the playing field that eventually allows the U.S. to begin to rebuild its hollowed-out industrial base, then this whole episode might be remembered as a big positive bookended by a whole lot of volatility on either side. But that outcome is far from certain as it is a long way off, and in the meantime, I worry that anyone who translates any headline — real or fake — purporting a “90-Day Pause” into “The Trade War Is Over” is probably getting ahead of themselves.

So even if Wednesday’s announcement legitimately gave markets at least some reason to cheer, it still pays to be cautious before concluding that the hair-whitening market volatility is over. But how will we know that this is truly an off-ramp and not just a temporary pause in the breakdown lane? That’s impossible to guess. But you could do worse than pay attention to U.S. Treasuries, or to what companies are saying (and doing) as they release first quarter results.

Let’s talk Treasuries first. Often, heightened volatility in the stock market is accompanied by big gains in Treasuries and the lower interest rates that implies — a classic “flight to safety” trade wherein investors park the big wads of cash they receive by selling shares into assets backed by the full faith and credit of the United States. But as the trade war rages on, that doesn’t seem to be happening this time: Yields on 10-year Treasury notes rose by half a percent last week, while yields on 2-year Treasuries rose by more than 0.30% even as equity market volatility remained elevated. By my accounting, that’s a level of pressure on government bonds that investors haven’t had to cope with since at least mid-2022 when the Federal Reserve (the Fed) was actively pushing rates higher to combat post-COVID inflation.

Explanations for all this trouble in treasury land range from the esoteric — like a massive unwind of ‘the basis trade’ (a leveraged strategy employed by hedge funds and other sophisticated investors that is probably beyond the scope of our discussion), to the mundane (on-again/off-again fears about recession and growth and a growing need for new supply to fund fiscal deficits). Even more ominous, some are even speculating that treasury yields are rising because foreign investors may have suddenly lost their appetite for dollar-denominated debt, implying that the ‘full faith and credit’ of the U.S. isn’t as full or faithful as it once was. And this is all being compounded by the Fed’s conundrum, straddling as it is a tightrope between recession-fighting rate cuts on one hand and inflation-fighting rate hikes on the other.

And then there are companies themselves. Earnings season is just getting started, with only a handful of banks and an airline to help guide the discussion. But trends so far are mixed at best: On Wednesday, Delta Airlines dropped its earnings guidance, said current trends feel recession-y, and admitted that growth has “largely stalled” (while also putting European plane manufacturer Airbus on notice that it has no intention of paying tariffs on planes it delivers in 2025 — take THAT, Europe...). Meanwhile Walmart — arguably the longest and most hotly contested front in the trade war with China — went out of its way to reaffirm its guidance for the upcoming quarter — not due to be reported until early May — but admitted it would have to take a near-term hit to its profit margins to make that a reality.

But what about the banks? Again, “mixed” is as good a description as any. Friday’s first-quarter results were fine, and while some banks are setting aside more capital in their rainy-day funds in anticipation of an increase in borrower defaults, others are setting aside less. But all are seeing trading revenue spike and deal-making activity decline, and executives seem universally less-than-optimistic about what might lie ahead. Maybe this week’s results will provide more clarity.

In the meantime, I suppose we should at least acknowledge last week’s macroeconomic data. Inflation at both the consumer- and the producer level were each a pleasant surprise, but markets hardly seemed to notice amid all the tariff talk.^2,3 Just as surprising — but not in a pleasant way — was Friday’s consumer sentiment release from the University of Michigan, which included word that consumers’ inflation expectations for the next 12 months rose to 6.5%, the highest since 1981.⁴  But all that, plus a big drop in small business sentiment⁵ and a curious collapse in consumer credit during February,⁶ failed to grab anyone’s attention as tariffs continued to command the narrative. And unfortunately, that’s probably how things will be for the foreseeable future.

What to watch this week

Once again, tariff talk will very likely strip anything of a more fundamental nature of its ability to move markets. Watch for any signs that bilateral, country-by-country deals are being struck that might move an offending country off the list of reciprocal tariffs and onto something kinder and gentler. Watch also for tariff proposals on individual products and commodities: The administration has promised to announce tariffs on pharmaceuticals in the very near future, and proposals regarding lumber, copper, and semiconductors are still apparently being worked on.

Some of these product-specific announcements would likely be well-received by markets (like last weekend’s carve-out for smartphones, laptops and other electronics), while others (i.e., any significant duty applied to pharmaceutical imports), likely will not. Watch also for any further retaliation by China or renewed saber-rattling from the European Union, which has gone notably quiet in recent days. Of course, anything that even hints that last week’s 90-day pause will (or won’t) become more permanent will naturally grab investors’ attention.

Meanwhile, the ordinary business of business marches on. This week’s earnings calendar will be led by a handful of big banks that passed on the opportunity to release results on Friday, including Goldman Sachs (Monday), Bank of America (Tuesday), U.S. Bank (Wednesday), and American Express (Thursday). Watch also as smaller, regional banks begin to report results. Logically, regional banks are more sensitive to credit trends among smaller, more domestically-focused customers and may therefore serve as a better window into how America’s Main Street is holding up than last week’s bulge-bracket banks. 

Other earnings highlights include a pair of transport/logistics firms (trucking company J.B. Hunt on Tuesday and rail operator CSX on Wednesday) who will both serve as an important check on the health of domestic consumer demand. For another read on the U.S. consumer, tune in to United Airlines’ report on Tuesday and homebuilder DR Horton on Thursday. And if the health of the semiconductor business is key to your own personal outlook, pay attention as ASM Lithography — a Dutch company who supplies an enormous share of the world’s most-specialized and sought-after semiconductor capital equipment — and Taiwan Semiconductor (a dominant manufacturer of microprocessors) share their thoughts about the brave new trade regime.

From a scheduled release perspective, Wednesday’s retail sales release for March is probably worth a read. As mentioned above, last week’s consumer credit release from the Federal Reserve seemed more consistent with a buyer’s strike than panic-buying, but that release covered February, whereas this week’s retail sales release covers March, which should give it a more current feel. I’d watch specifically for any evidence that the high-end consumer, who has done more than her fair share of keeping the economy afloat, has started to pull back.

We’ll also get several opportunities to test the resolve of U.S. manufacturers by way of the New York Fed’s Empire State Manufacturing release (Tuesday) and its brother-in-arms, the Federal Reserve Bank of Philadelphia (Thursday). A similar read might also come from the Fed’s industrial production and capacity utilization release, due out Wednesday. That report usually does a decent job calling out which areas of the smokestack economy are humming along and which are drooping. For example, one highlight of the February release was a significant increase in auto manufacturing, something that may or may not repeat given the ongoing drama in Washington.

Speaking of the Fed, the extremely difficult job facing the Fed amid all this is likely to come into clearer focus this week as multiple Fed officials are expected to speak. Thomas Barkin (President of the Richmond Fed), Chris Waller (Fed Governor), Patrick Harker (Philadelphia), and Raphael Bostic (Atlanta) are all scheduled to speak on Monday, with other Fed officials dotted throughout this week’s calendar. The conundrum facing the Fed is simple sounding, but hugely complex: Tariffs are very likely inflationary in the first instance, which all else equal should make the Fed more reluctant to cut rates. On the other hand, it’s impossible to know how durable any such surge in inflation might be, and any accompanying decline in aggregate demand would place the Fed’s other priority — encouraging growth and full employment — at risk. Therefore, anything Fed officials say that might suggest how the Fed might react to a significant tightening of financial conditions or extended market turmoil is almost certain to catch the market’s attention.