(Bloomberg) — Wall Street investors weighing the impacts of Donald Trump’s trade war on Corporate America sent stocks climbing amid bets the Federal Reserve could cut rates sooner than anticipated to prevent a recession.
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The S&P 500 rose 2% to the highest since the day Trump announced his tariff offensive. The president said the US is talking with China on trade despite Beijing’s denial. In late hours, Alphabet Inc. jumped on solid earnings. Intel Corp. gave a weak forecast. Bond yields slid on wagers Fed Chair Jerome Powell will be under pressure to ease policy if the labor market unravels.
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In an interview with Bloomberg Television, Fed Governor Christopher Waller said he’d support rate cuts in the event aggressive tariff levels hurt the jobs market. Fed Bank of Cleveland President Beth Hammack told CNBC the central bank could move on rates as early as June if it has clear evidence of the economy’s direction.
“While the Fed has maintained a cautious approach to monetary easing, we believe it will be willing and able to respond to signs of economic weakness, especially rising layoffs,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
Trump’s tariffs are more likely to hurt growth than spur inflation, Myles Bradshaw at JPMorgan Asset Management told Bloomberg Television. He expects the US central bank will eventually need to cut rates more aggressively, having kept policy on hold for longer.
As traders waded through the latest batch of earnings, signs of unease about economic prospects have become evident.
American Airlines Group Inc. withdrew its full-year earnings outlook, joining a growing number of companies hedging their bets on the broader economy. Southwest Airlines Co.’s chief said his industry is already in a recession. PepsiCo Inc. and Procter & Gamble Co. lowered their forecasts.
The looming impact of higher costs from the Trump administration’s trade policy is making it very difficult for the corporate world to forecast how the year will play out as consumers brace for economic pain.
“Companies with direct impact from tariffs are generally being forthcoming, providing guide that incorporates the full brunt of both blanket and reciprocal tariffs,” said John Belton at Gabelli Funds.
In another sign of how firms are growing cautious amid uncertainty surrounding tariffs and tax policy, data Thursday showed orders placed with US factories for business equipment barely rose in March.
“Companies are front-running the tariffs, so these durable goods data aren’t something to get excited about,” said Jamie Cox at Harris Financial Group. “The good news is that companies are protecting their earnings and margins, and investors will be happy about that.”
Yet several analysts are souring on the profit outlook due to the risk of an economic slowdown, with the US benchmark’s earnings revisions breadth — or estimated upgrades versus downgrades — approaching downside extremes.
One of Wall Street’s biggest bulls is seeing tariffs hitting Corporate America the hardest. Deutsche Bank AG’s Bankim Chadha slashed his year-end S&P 500 target to 6,150. He also sees S&P 500 earnings declining 5% this year, compared with a consensus expecting 8% growth.
“Investors should continue to focus on the long term, with an eye toward companies with high earnings achievability, limited tariff exposure, and quality balance sheets,” said Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy Team.
While stocks have finally found breathing room, that doesn’t mean pressure points that rattled the market are gone, according to Goldman Sachs Group Inc.’s Flow of Funds team.
“Much like an 80 degree day in NYC in April, I wouldn’t jump into the pool just yet,” the funds specialists wrote in a note to clients this week.
“We continue to expect very volatile trading heading into and including next week,” said Dan Wantrobski at Janney Montgomery Scott. “This includes the potential for explosive moves in either direction.”
He also noted that the 5,500 level in the S&P 500 remains a key resistance level to watch. That’s roughly a 50% retracement of the entire correction cycle to date, he added.
“Rallying above this on a closing basis would generate a bullish technical signal and help put the bulls back in charge of the field,” he concluded.
Craig Johnson at Piper Sandler noted that while the recent rally is constructive, he’s also monitoring the 5,500 mark as a key resistance.
“Until buyers overcome that level, ideally with increased volume, more backing and filling is likely,” he said. “However, once 5,500 is successfully cleared, we are likely to see another leg up toward 5,800.”
Some of the main moves in markets:
Stocks
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The S&P 500 rose 2% as of 4 p.m. New York time
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The Nasdaq 100 rose 2.8%
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The Dow Jones Industrial Average rose 1.2%
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The MSCI World Index rose 1.6%
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Bloomberg Magnificent 7 Total Return Index rose 2.9%
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The Russell 2000 Index rose 2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.4%
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The euro rose 0.6% to $1.1384
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The British pound rose 0.6% to $1.3338
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The Japanese yen rose 0.5% to 142.72 per dollar
Cryptocurrencies
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Bitcoin was little changed at $93,594.76
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Ether fell 1.8% to $1,763.7
Bonds
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The yield on 10-year Treasuries declined seven basis points to 4.31%
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Germany’s 10-year yield declined five basis points to 2.45%
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Britain’s 10-year yield declined five basis points to 4.50%
Commodities
–With assistance from John Viljoen, Sujata Rao, Robert Brand and Anand Krishnamoorthy.
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