S&P 500 Erases Losses From Trump Global Tariff Policy

The S&P 500 (Index: SPX) has fully recovered from the change in market regime associated with President Donald Trump’s “Liberation Day” announcement of global tariffs on all nations after the market closed on 2 April 2025. As of the close of trading on Friday, 2 May 2025, the index stood at 5,686.67, up 2.9% from the previous week’s close and 15.70 points (or 0.3%) above where it ended the trading day on 2 April 2025.

It’s as if the entire month of market-moving headlines related to tariff and trade-related news was never anything more than a volatile noise event.

But that would be misleading. We recognized the President’s 2 April 2025 represented a change in market regime, which in terms of the math for the dividend futures-based model, means that the value of the multiplier changed.

That’s an uncommon event. We’ve previously observed the multiplier can be nearly constant for short-to-medium length periods in the market, where a medium length term can last longer than a decade.

When the multiplier changes value, the change is accompanied by elevated volatility in stock prices, which we describe as a change in market regime. That volatility comes with stock price movements above and beyond the large changes the dividend futures-based model associates with investors simply changing how far forward in time they’re looking when setting current-day stock prices, which we ordinarily describe as Lévy flight events.

Separately, we’ve observed that stock price volatility tends to occur in clusters. That got us thinking. Back during the coronavirus pandemic, there were several changes in market regime that that model could only capture as changes in its multiplier that occurred in relatively short order. What if the same phenomenon is happening now? What if the chaotic changes in market regime are happening in their own volatility cluster?

The latest update to the alternative futures chart is based on that hypothesis. Here, following the first market regime change event of 21 February 2025, when the value of multiplier m changed from +1.5 to +4.0 when the company behind China’s DeepSeek artificial intelligence system popped the market’s AI bubble by announcing they would make their code open source, we’ve identified two additional potential market regime changes.

The first change shown on this chart took place on 9 April 2025, which coincides with President Trump’s announcement the U.S. would pause implementing its higher reciprocal tariffs on most nations, which we observe would appear to have changed the multiplier from +4.0 to +1.0. The second change, in which the value of the multiplier appears to have been reset to value of -2.0, took place after 28 April 2025. That timing suggests China’s actions to waive some of its retaliatory tariffs on U.S. goods in the tariff war between the two nations contributed to resetting the value of the multiplier. The resulting change in market regime then contributed to boosting stock prices throughout the week as many market observers took it as a sign of a first step toward resolving the trade dispute through practical diplomacy.

That’s what we gather from the context of the past week’s random onset of market-moving headlines with what we observe from how the model’s projections change when we change only the multiplier, while assuming investors are mostly paying attention to the current quarter of 2025-Q2 as they wait to see how the Fed might change its monetary policies in response to the tariff-related chaos. Here are the headlines that moved the markets during the week that was:

Monday, 28 April 2025

• Signs and portents for the U.S. economy:

• Oil edges up despite murky economic outlook, potential OPEC+ supply hike

• Investors fear Big Oil could cut share buybacks as crude prices slump

Warren Buffett’s Berkshire Hathaway Now Owns 4.89% of the Entire U.S. Treasury Bill Market

Bigger trouble, stimulus developing in China:

• China downplays impact of Trump tariffs on economic recovery
• China holds off on new stimulus, shows composure in US trade war

Bigger trouble developing in Japan:

• Japan’s factory output slides as Trump tariffs jolt manufacturers

ECB minions getting excited for next Eurozone rate cut, like to keep them small:

• ECB consensus builds for June rate cut but no appetite for big move, sources say
• ECB’s Villeroy: there is still gradual margin for rate cuts
• ECB may cut rates below neutral, Rehn says

Bigger trouble developing in the Eurozone:

• Massive power outage hits Spain, Portugal; cause under investigation

• Spain hits first weekday of 100% renewable power on national grid

ECB minions say Eurozone economy facing a dark future:

• Euro zone economy facing dark future, ECB policymakers warn

Nasdaq, S&P, and Dow closed near flat with big earnings on deck

• Equities end higher after choppy trade as earnings, data, tariffs gauged

Tuesday, 29 April 2025

• Signs and portents for the U.S. economy:

• Shipping volume will plummet 35% next week, LA port official says in CNBC interview
• Oil prices fall 2% to 2-week low as trade war concerns dampen demand outlook
• Tariff-Frontrunning Sends US Trade Deficit To New Record High In March

Bigger trouble, stimulus developing in China:

• China’s manufacturing activity falls in April, PMI shows

• China’s factory activity slows as US tariffs hit export orders

Exclusive: China waives tariffs on US ethane imports, sources say

• Chinese Plastics Factories Face Mass Closure As US Ethane Supply Evaporates

ECB minions say Eurozone economy will slow further and also that Eurozone banks have been doing fine:

• Trade war may lower growth and inflation in euro zone, ECB’s Cipollone says

Euro zone bank lending continued to pick up before tariffs, ECB data shows

Dow adds nearly 1% on earnings boost, S&P posts 6-day win streak for first time since Sept

• Wall St closes mixed, gold rebounds amid trade fog; earnings, data loom

Wednesday, 30 April 2025

• Signs and portents for the U.S. economy:

• US economy shrinks in first quarter as tariffs unleash flood of imports
• Oil settles lower, posts steepest monthly decline since 2021
• Stagflation Scenario Slammed As Fed’s Favorite Inflation Indicator Tumbles To Four Year Lows

Fed minions ready to hold off resuming interest rate cuts, former central bank minions think the current Fed minions are doing the wrong things:

• Fed signals rates will remain unchanged despite market bets on looming cuts
• Fed should ditch current policy framework, group of former top central bankers says

Bigger trouble, stimulus developing in China:

• China’s automakers will lead a race to the bottom
• China’s solar industry remains in red as trade war adds to problems

Bigger trouble developing in Japan, BOJ minions to hold off on plan to hike rates again:

• Japan’s factory activity falls on US tariff worries, PMI shows
• BOJ to keep rates steady, cut growth forecasts

Bigger trouble developing in Eurozone:

• Euro zone economy expands faster than forecast but faces trade war hit
• Germany skirts recession but unemployment rises
• German inflation eases further, strengthening case for ECB cuts

Wall Street stages big reversal to eke out a gain, but ends wild April in the red

• Late rally propels Dow, S&am;pP 500 to slight gains

Thursday, 1 May 2025

• Signs and portents for the U.S. economy:

• Oil prices take breather after selloff on supply worries
• ‘Beneficial Switching Away From Imports’ – US Manufacturing Surveys Signal No Recession In Q2

Fed minions get message from bond market as they ponder next action with US interest rates:

• Bond market thinks Fed should cut rates, Treasury’s Bessent says

Bigger trouble, stimulus developing in China:

• China Erupts: Furious Workers Riot As Factories Collapse Under Trump’s Tariffs

Wall Street’s 8-day win streak brings it to the cusp of erasing all tariff-related losses

• US stocks end higher on tech boost, yen slides on BOJ gloom

Friday, 2 May 2025

• Signs and portents for the U.S. economy:

• Jobs data in charts: Payrolls top expectations, unemployment rate holds steady
• Tariff-Frontrunning Sends US Trade Deficit To New Record High In March
• Oil posts biggest weekly loss in a month ahead of OPEC+ meeting
• Trump touts low gasoline prices, once again calls on Fed to cut rates after jobs report
• Chinese-U.S. imports being diverted to Canada amid trade war

Bigger trouble, possible tariff negotiations developing in China:

• China low-value package exemption ends with questions over US tariff collections, logistics

• ‘De minimis’: the trade perk Trump ended as part of China tariffs

China says it’s assessing U.S. initiative on trade talks

Beijing weighs fentanyl offer to US to start trade talks, WSJ reports

JapanGov minion attempts to rattle US tariff negotiators:

• Japan says massive Treasury stockpile among tools for US trade talks

• Japan’s Finance Minister Threatens Liquidation Of US Treasuries, Sparking Shock, Confusion

ECB minions won’t let Eurozone inflation jump stop them from cutting interest rates again:

• Euro zone core inflation jump not seen preventing rate cut
• ECB’s de Guindos optimistic about continued rate cuts in Presse interview

Wall Street stocks buoyed by strong economic data, possible US-China trade talks

The CME Group’s FedWatch Tool projects the Fed will refuse to resume cutting the Federal Funds Rate until the conclusion of its 30 July (2025-Q2) meeting, six weeks later than expected a week earlier. The FedWatch Tool now forecasts the Fed will reduce U.S. interest rates three times before the end of 2025, anticipating 0.25% cuts in the Federal Funds Rate on 30 July (2025-Q3), 17 September (2025-Q3), and 29 October (2025-Q4).

The extraordinary gold import-adjusted Atlanta Fed’s GDPNow tool‘s final projection of real GDP growth in 2025-Q1 was -0.4%, which is just a tick under the Bureau of Economic Analysis’ initial estimate of -0.3% growth for the quarter and perhaps signals the start of a U.S. recession. Should that be the case, this outcome has been well anticipated by at least one recession forecasting model, which predicted a recession was likely to start during this period more than a year earlier.

Looking forward, the GDPNow tool has shifted its nowcast of real GDP growth forward to project the growth rate of the now current quarter of 2025-Q2. As of Friday, 2 May 2025, it forecasts positive real GDP growth of +1.1% for the second quarter of 2025.

Image Credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bull and bear who are yawning while looking at a news ticker that says ‘TARIFF WAR’”.