Market Update: 4/21 – 4/28: Behind the Market Bounce: Real Risks from Trade Wars
- Gold Crown Investing
- Apr 28
- 4 min read
A Small Bounce Back
U.S. stocks this past week recovered slightly after weeks of pressure. We saw the major indexes, S&P 500, Nasdaq, and the Dow Jones end in the positive. What played a role in these gains?
· The liberation day tariffs Trump announced were paused with a 90-day suspension on all countries with tariffs above 10%, except for China (145% tariff). (The 10% remains effective for all countries).
· We saw a big jump when Trump suggested a potential deal is doable if China comes to the table to negotiate.
· Consumer staples have shown resilience throughout this uncertainty which includes your Walmart, Kroger and other essential companies we all know and love.
However, markets are still down for the year and the underlying concerns about tariffs, recession risks, and inflation still weigh heavily on market sentiment.
Tariff Impacts
The impact is already showing up across the economy:
Shipments into the Port of Los Angeles are expected to fall 36% year-over-year by mid-May, signaling a major slowdown in U.S.-China trade.
Companies like Target, Walmart, Ford, and PepsiCo are raising prices or warning of lower earnings.
Bank of America and EY economists noted the drop in port shipments signals the end of companies "front-loading" orders before tariffs and the beginning of a "true pullback" in trade volumes.
Economists believe this is an early warning sign of declining economic activity and weaker GDP growth. Fewer goods on shelves later this year could drive up prices, reduce consumer spending, and drag on the broader economy.
Inflation and the Federal Reserve
The Federal Reserve has kept interest rates steady between 4.25% and 4.5%, but tariff-driven inflation pressures are complicating the Fed’s plans to lower rates later this year. Rising prices from tariffs could force the Fed to delay rate cuts or even consider raising rates again if inflation worsens.
Higher inflation without strong wage growth risks squeezing consumers and slowing economic momentum. The Fed is now balancing between supporting economic growth and preventing a resurgence of inflation.
Trump Softens Auto Tariffs to Protect U.S. Industry
President Trump announced changes to soften the impact of planned tariffs on imported auto parts. Originally, a 25% tariff was set to be imposed on all imported auto parts starting May 3. Under the new policy, tariffs will be reduced or lifted for auto parts used in vehicles manufactured within the United States, while fully imported cars built overseas will still face full tariffs.
This decision follows warnings from major automakers like General Motors, Toyota, Volkswagen, and Hyundai. Industry leaders warned that high tariffs would:
Scramble global supply chains
Raise car prices for consumers
Cause layoffs and production shutdowns across U.S. plants
Trump’s adjustment is aimed at rewarding domestic manufacturing while avoiding a damaging shock to the U.S. auto industry right before the election season heats up.
Treasury Borrowing Surges as Debt Ceiling Fight Drags On
The U.S. Treasury sharply increased its borrowing estimate for the current quarter, now projecting $514 billion in net borrowing from April to June — up from $123 billion projected in February. This surge is largely because the government's cash balance was far lower than expected due to the unresolved debt ceiling.
Expected end-of-March cash: $850 billion
Actual end-of-March cash: $406 billion
Without a resolution to the debt limit, the Treasury has limited options: it must tightly manage spending and issue new debt cautiously. Some extra revenue from tariffs could help, but not enough to cover the shortfall.
Potential risks from rising borrowing:
Higher Treasury bond yields, raising borrowing costs across the economy.
Higher mortgage, car loan, and business loan rates.
Increased market volatility if the debt ceiling standoff worsens.
The Treasury also plans to borrow an additional $554 billion between July and September, again assuming Congress resolves the debt ceiling issue soon.
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