The extreme volatility ignited by U.S. President Donald Trump’s abrupt “Liberation Day” tariff announcement appears to have subsided in recent sessions, although lingering uncertainty continues to cast a shadow on market prospects.
According to Capital Economics, the worst of the market turmoil may now be behind us. This calming effect is partly attributed to the exemption of electronic goods from tariffs and a 90-day pause on most reciprocal tariffs, measures that have notably benefited tech stocks.
Tech Resilience and Market Dynamics
Tech Stock Rebound:
Many tech companies, among the biggest losers during the initial shock, have rebounded as investors reacted to the tariff pause.
Dollar Weakness:
U.S. equities have generally underperformed abroad in April due to a significant drop in the U.S. dollar since April 2.
Trade War Outlook and Economic Projections
Base Case Scenario by Capital Economics:
The firm envisions a scenario where a 10% tariff is imposed on all countries (except China, which is expected to negotiate a rollback).
In this context, U.S. economic activity would slow but not enough to trigger a recession, suggesting the S&P 500 might stabilize around 5,500 by year-end.
Treasury Market Expectation:
Capital Economics anticipates that long-dated U.S. Treasury market headwinds will ease soon, though the Federal Open Market Committee (FOMC) is likely to hold rates steady until well into 2026.
They expect the 10-year U.S. Treasury yield to end the year slightly above its current level of 4.40%.
Dollar and Broader Macroeconomic Outlook
U.S. Dollar Forecast:
Analysts predict a modest recovery of the U.S. dollar by year-end. However, this rebound is unlikely to fully offset its losses since February.
Broader Risks:
The range of potential outcomes has widened, with significant downside risks due to ongoing policy uncertainty and volatile global economic conditions.
For up-to-date macroeconomic insights and to track market trends, investors can consult the? Economics Calendar – Economics Data API from Financial Modeling Prep.
