Anthony Saglimbene, Chief Market Strategist - Ameriprise Financial
It seems investors have become comfortable (possibly complacent) with the idea that today's trade environment is unlikely to get materially worse than where levels stand currently.
The S&P 500 Index has rebounded sharply from its April lows when tariff uncertainty was at its peak. Firm economic data this year, strong corporate profitability in the first quarter, and aggressive stock dislocations across technology prompted investors to take advantage of opportunities to buy quality stocks at discounted prices.
Notably, as the second quarter is nearing a close, the broad-based stock barometer is close to its February all-time high and is positive by +1.6% year-to-date. Considering the S&P 500 was down more than 15% YTD on April 8th, U.S. major stock averages have posted an incredible turnaround in such a short period.
However, there are still many unknowns when it comes to trade. Here’s a look at five factors that have the potential to interrupt market momentum in the near term – and what the long-term outlook may be.
1. Final court rulings are yet to come
Last month, the U.S. Court of International Trade struck down U.S. tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The decision includes President Trump's 10% universal tariffs, the 20% incremental tariff rate on China, and the 25% tariff on non-USMCA-compliant imports from Mexico and Canada. The ruling does not include sectoral tariffs, such as the tariffs placed on steel, aluminum, lumber, and semiconductors.
Bottom line: The Trump administration quickly filed an appeal, and the case is likely headed to the Supreme Court for a final ruling. In the meantime, a federal appeals court has allowed all tariffs to remain in place for the time being and as the court looks deeper into the decision.
2. The original July 9th trade deadline is looming
Originally, the White House set a July 9th deadline for countries to strike a trade deal with the U.S. or face the original reciprocal tariffs announced on April 2nd. Where that strategy sits now remains unclear. Moving forward, the Trump administration has several levers it can pull to keep tariff pressures in place, but with likely modifications. Notably, President Trump’s use of tariffs play an unorthodox role in his economic plan, and helps produce leverage with countries/companies when attempting to reshape trade practices/agreements.
Bottom line: Trump is looking to rewrite the rules of global trade, has a vision for reviving manufacturing in the U.S., and wants to pressure China. In our view, last month's court setback is unlikely to change this point.
3. Legislative hurdles remain
Trump is also looking for revenue to pay for other fiscal priorities that are important to his administration. However, the Congressional Budget Office does not consider revenue raised from tariffs as helping pay for the House's recent One Big Beautiful Bill Act, which currently sits in the Senate and is forecasted to add $2.4 trillion in debt over ten years.
Bottom line: Whether or not one agrees with the approach, the Trump administration believes that the use of tariffs is its silver bullet to help accomplish several of his goals. Thus, the overhang of a messy tariff strategy, ongoing trade frictions with key trading partners, and increased use of less understood workarounds by the White House to implement pressure are areas of uncertainty that are likely to stick around as we move through the summer.
4. Investors have become somewhat desensitized to trade headlines
We believe the idea of a manageable tariff environment has helped lift stock sentiment and somewhat desensitized investors to ongoing trade headlines. Yet, that's a concerning statement given the pending July 9th deadline and ongoing court uncertainty about the legality of the White House tariff strategy.
Outside of clear and visible profit drivers across Technology and the AI theme that could help buoy a small set of stocks moving forward, the broader market may continue to face periods of unexpected volatility due to evolving trade conditions and elevated stock valuations.
Bottom line: Although the U.S. may eventually get to some form of a stabilized tariff environment in the future, albeit with increased rates, further legal challenges and a more complex trade road to navigate could prompt President Trump to make unexpected U-turns over the near term that challenge the trajectory of economic growth and corporate profits in the second half. That said, given solid overall economic/profit conditions in the U.S., investors may benefit as long-term buyers of the broader market should stocks see increased volatility over the summer.
5. Past market unrest and recoveries show long-term resilience
This cycle of uncertainty is centered around trade. The last big bout of uncertainty was in 2022 and centered around inflation and aggressive Federal Reserve rate hikes leading to a recession (which never came to pass). Prior to that, uncertainty was centered around the ongoing strength of reopening trends following a once-in-a-generation pandemic. The point? There's always something for investors to worry about.
Sometimes, the concerns are front-page, above-the-fold, and market-moving. Other times, the uncertainty is buried in section B of The Wall Street Journal, and investors largely brush by them until they subside or can't be ignored any longer.
Regardless, stock prices routinely adjust to changes in the environment, and this cycle of trade uncertainty is no different.
Typically, growth and profit expectations eventually reset, and stock prices build a new base from which to move higher. Maybe April 8th was the beginning of recovery for this cycle of uncertainty, with likely fits and starts possible as we move through the summer. And maybe the S&P 500 will go on to retest the lows or trade sideways for a while.
Bottom line: In our view, investors may be well-served over the near term by avoiding making more dramatic calls in their portfolios that count on trade headlines moving to the sidelines or more materially disrupting the growth environment. Based on where markets stand currently, it appears the market is holding judgment on how much better or worse conditions progress from here.
Connect with an Ameriprise financial advisor
Whether you as an investor are concerned or have moved on, uncertainty is likely to continue. If you have questions about your personalized investment strategy, reach out to an Ameriprise financial advisor.