Market Overview

This past week concluded with a notable rally on Wall Street, following comments from a key Federal Reserve official regarding the potential for market stabilization interventions. The S&P 500 index saw an impressive increase of 1.8% on Friday, closing with a total weekly gain of 5.7%, marking its best performance since November 2023. Despite this surge, the index remains down 4.4% for the month.

Impact of Tariff Announcements

Volatility reigned as President Donald Trump made unexpected moves regarding tariffs, including a Wednesday announcement to delay significant “reciprocal” tariffs on various nations except China, which catalyzed a 9.5% spike in the S&P 500, marking its strongest single-day performance in over a decade. However, the market faced renewed selling pressure the following day, with banks voicing concerns that tariffs on China might risk triggering a recession in the U.S.

Federal Reserve’s Position

The market rally gained momentum after Boston Fed President Susan Collins stated to the Financial Times that the Fed would be ready to support market stability in cases of disorderly conditions. This assurance contributed to an easing of the sell-off in U.S. Treasuries, with the 10-year yield rising to 4.47% on Friday afternoon from an earlier peak.

Market Sentiment and Longer-Term Concerns

Despite the Friday gains, investor sentiment remains cautious amid concerns about the economic implications of tariffs. James Knightley, chief international economist at ING, emphasized, “Recession risks are real,” noting that tariffs could increase costs and diminish consumer spending power. Concerns about government budget cuts further add to these fears.

John Williams, president of the New York Fed, projected that U.S. economic growth might drop to below 1% this year, warning that tariffs could inflate prices to 4%, up from nearly 3%. He pointed out an emerging trend of uncertainty reflected in soft economic data.

Bond Markets and Commodities

Torsten Sløk, chief economist at Apollo Global Management, described the current state of the bond market as a “perfect storm.” Several factors such as foreign investor behavior and general risk aversion are influencing rising Treasury yields.

In commodities, oil prices experienced a more than 2% rise on Friday, partly driven by U.S. energy secretary Chris Wright’s comments about possible actions to limit Iran’s oil exports as a measure against nuclear development. Brent crude closed at $64.76 per barrel, while West Texas Intermediate ended the day at $61.50, reflecting ongoing assessment of U.S.-China trade tensions on the global economy.