Stocks Soar as Trump Pauses Tariffs

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Stocks Soar as Trump Pauses Tariffs

The wild ride on US stock markets took a dizzying turn Wednesday afternoon when President Donald Trump announced a pause on some of his harshest tariffs, sending the S&P 500 soaring toward its biggest gain since March 2020. The S&P 500 Index surged 9% in afternoon trading. The index is headed for its first advance […]

The S&P 500 Index surged 9% in afternoon trading. The index is headed for its first advance since Trump’s trade war wiped $11 trillion in value from US stocks. All 11 S&P 500 sectors rose at least 2.5%. The Nasdaq 100 Index surged 11.3%. The Dow Jones Industrial Average rallied more than 7.1%. The two-year Treasury yield hit 3.9%. Circuit breakers designed to tamp down volatility in times of market turbulence only trigger for downside moves.

“I have authorized a 90 day pause, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted on Truth Social. The pause does not include tariffs on China, which Trump raised to 125% after the Asian nation retaliated earlier in the day.

Goldman Sachs Group Inc.’s basket of the most-shorted stocks jumped 13%, beating the S&P 500’s gain. The move comes as traders rushed to cover short positions they accumulated amid the market downturn. Last week alone, hedge funds registered short selling in US macro products, such as indexes and ETFs at the highest weekly volume on record last week.

On Tuesday, JPMorgan Chase & Co.’s prime brokerage desk warned that a market rally would force hedge funds to cover short positions that have been added “aggressively.”

Rapid stock buying by leveraged exchange-traded funds also contributed to the velocity of the move.

“Levered ETFs mechanically adding long equity exposure supercharged the rally,” according to Daniel Kirsch, head of options for the brokerage Piper Sandler & Co. He said traders moved quickly to unwind downside hedges, which also contributed to the move.

UBS Group AG’s trading desk also sees clients unwinding hedges, while “a high level of skepticism remains despite the headlines,” said Michael Romano, the firm’s head of hedge fund equity derivative sales.

Retail traders were among the most active buyers Wednesday. As of 2:00 p.m. Wednesday they already bought $3.3 billion of equities, which hit the third-largest amount on record for the first 4.5 hours of US trading, according to Emma Wu, JPMorgan’s global quantitative and derivatives strategist.

Shares of Nvidia Corp. soared 16.89%, Delta Air Lines Inc. jumped 22.51%, Advanced Micro Devices added 22.33% and Tesla Inc. rallied 20.64%%. Nvidia Corp. and other major chipmakers rose at least 10%. Only four S&P 500 stocks were lower.

Wall Street’s so-called fear gauge, the Cboe Volatility Index, or VIX collapsed to 35 from 50.

Earlier in the session, Trump indicated he was at least paying attention to the market volatility, writing on Truth Social that “this is a great time to buy” and urging Americans to “BE COOL” amid the turbulence.

The latest change of direction shook investors across Wall Street.

“It feels like his advisers have talked Trump off the cliff,” said Laura Lau, senior vice-president and chief investment officer at Brompton Corp. She said there was still a lack of clarity on what countries exactly were spared from tariffs and how dramatically Trump is still prepared to escalate his trade war with China. “It’s hard to have a fundamental view.”

That the reprieve excludes China was cause for some concern on Wall Street.

“Respite? Further economic suicide? It will all depend on where you source product from of course, and unfortunately about $450 billion is still being imported from China,” Peter Boockvar of Bleakley Financial Group wrote in a note titled “Dramamine Please.”

Brent Kochuba, Founder of SpotGamma, said the pause was “very bullish for markets short-term” but “it doesn’t solve the tariff problem.”

The sharp rally comes as US stocks had been at the the most oversold since the depths of the pandemic, and traders were looking for a market bottom.

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