US stocks off to major bounce back from their tariff doom spiral
After markets plunged over the course of the past three trading sessions, Wall Street investors were looking for any excuse to catch their breath ahead of another planned tariff escalation at midnight.
They seem to have found one — at least for now.
US stocks opened higher Tuesday, setting the stage for a rebound. The Dow rose 1,360 points, or 3.6%. The broader S&P 500 gained 3.4%. The tech-heavy Nasdaq Composite rose 3.76%.
Over the course of the past few days, stock prices got absolutely hammered as Wall Street grew fearful that President Donald Trump’s tariff policy would plunge the US and global economies into a recession. But after three days of market carnage, investors appeared to be seeking some buying opportunities.
The price-to-earnings ratio of S&P 500 companies closed below 17 Monday — historically cheap, giving investors a chance to scoop up stocks they believe might be oversold.
“This is a very normal action and very technical in nature after a shock period,” said Truist’s Keith Lerner. “The market is extremely oversold, and markets don’t move in a linear fashion.”
Lerner noted that historic market rebounds tend to be clustered in with massive declines, as investors with FOMO worry they could miss out on a rally.
“In a period of uncertainty, each bit of new information is overextrapolated, which leads to wider-than-normal-swings,” Lerner added.
That explains why a bit of fake news Monday that Trump was considering a tariffs pause — immediately batted down by the White House — sent stocks temporarily surging. That gave markets a taste for what could happen if some nations begin to make progress in negotiating lower tariffs.
“Yesterday market players saw how the hint of ‘good news’ — in that case it was chatter about a pause in the Liberation Day tariffs — could rally markets by whole percentage points very quickly,” Michael Block of Third Seven Capital said in a note to investors. “Even though that proved to be all smoke, traders are now poised for the fire – that is, real news.”
High-stakes game of chicken
However, there’s no guarantee stocks will remain buoyant.
After imposing across-the-board 10% tariffs on virtually all products coming into the United States Saturday, the Trump administration is set to impose significantly steeper levies still on dozens of countries. Those tariffs, which Trump has called “reciprocal,” although they are no such thing , amount to as much as 50% for a handful of countries — and some tariffs on China could rise to about 70%.
Trump also threatened to slap an extra 50% tariff on China if the country doesn’t back down from its retaliatory tariffs it announced Friday. China’s Commerce Ministry on Tuesday said the country would “ fight to the end” of the trade war and would continue to stand up to Trump.