Stock Market Bounces Back as Trade Tensions Ease, but Inflation Remains a Concern
Stock market optimism surges on potential tariff reduction
After a week of ups and downs, Wall Street breathed a collective sigh of relief on Friday as signs of easing trade disputes, particularly the US-China one, boosted sentiment at the end of the trading week. However, economic data suggests that the trade policies enacted by US President Trump are driving inflation.
Wall Street Recap
US stock markets ended the week on a positive note. The Dow Jones Index rose 0.8%, closing at 42,655 points. The S&P 500 and the Nasdaq Composite advanced by 0.7% and 0.5%, respectively. Preliminary data showed that there were 1,916 gainers (an increase from Thursday's 1,809) and 831 losers (a decrease from 959) at the NYSE. The yield on 10-year notes fell 2 basis points to 4.44%.
Economic Impact of Trade Policies
While the trade issue is yet to be fully resolved, some investors remain hopeful. A strong first-quarter earnings season and easing tensions in the US-China trade dispute have buoyed investor confidence, according to Alexandra Wilson-Elizondo of Goldman Sachs. If the trade dispute is set aside for the next 90 days, issues related to the budget, taxes, and deregulation will come into focus.
Inflationary Pressure
The ongoing trade disputes, particularly those involving the US, are causing inflation. US import prices rose more than expected in April, indicating strong inflationary pressure from tariffs. This typically leads to cautious consumer behavior or forward buying, rather than long-term purchasing intentions. Housing starts rose less than expected in April, and the University of Michigan’s consumer sentiment index unexpectedly fell, suggesting a significant inflationary impact from the tariffs.
Sector Analysis
Two of the largest cable and broadband providers in the US are merging: Charter Communications is acquiring rival Cox Communications for $21.9 billion. Among individual stocks, Boeing lost 0.2%, despite Etihad Airways ordering 28 wide-body aircraft from the U.S. plane maker. Observers criticized Boeing for not building enough planes, production numbers have not yet fully recovered from the slump suffered after the crashes of two 737 MAX aircraft in 2019, the start of the Covid pandemic, and the incident in January 2024 when an Alaska Airlines Boeing plane lost an emergency exit door.
Tariffs: An Inflationary Factor with Limited Immediate Impact
In an economic analysis, it has been observed that despite concerns that tariffs would sharply increase consumer prices, data shows only a gradual increase in prices.tariffs contribute to about a 0.3% increase in core goods Personal Consumption Expenditures (PCE) prices, translating into roughly a 0.1% increase in core inflation overall from February to March 2025. The impact on overall US inflation remains limited at present, with housing costs accounting for more than half of the total monthly inflation rise in April 2025. However, analysts caution that tariffs could exert upward pressure on inflation later in 2025.
Sources: ntv.de, mau/DJ
Keywords: Tariffs, Inflation, Trade disputes
- The community and employment policies within businesses could potentially be affected if the ongoing trade disputes, driven by tariffs, lead to increased inflation that impacts purchasing power and consumer behavior.
- Investors may need to consider the future implications of tariffs on inflation when making financial decisions such as investing in stocks, bonds, or other assets, as tariffs could exert upward pressure on inflation later in the year.
