The 'Liberation Day' Unwind

The U.S. and China mingle in Lake Geneva... The Liberation Day unwind is complete... Things are looking like March again... Now we return to our regular programming...

Things in Switzerland went swimmingly over the weekend...

As we reported on last week, U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer traveled to Lake Geneva to meet with their counterparts from China over the weekend.

It was a "wonderful venue," according to Bessent – reported to be the private, leafy villa of the Swiss U.N. ambassador.

I (Corey McLaughlin) imagine there's nothing like Switzerland in the springtime. So maybe the backdrop indeed helped the U.S. and the world's second-largest economy reach a trade détente, the details of which we learned last night and today.

Both countries have agreed to significantly reduce their "reciprocal" tariffs of 145% and 125% on each other's imports for 90 days starting this Wednesday.

New U.S. tariffs on Chinese goods in 2025 are now at 30% – still high, but nowhere close to the numbers that have kept freight ships from embarking from China for U.S. ports over the past few weeks. In the agreement, Chinese tariffs on U.S. imports are cut to 10%.

This is separate from the various other tariffs the U.S. has imposed on steel, aluminum, and automobiles on Chinese and other foreign imports that still remain in place.

But according to President Donald Trump, this is a "total reset" of trade relations, as he wrote on his Truth Social platform.

Mr. Market welcomed the news...

The major U.S. stock market indexes soared at today's open and finished up across the board.

The benchmark S&P 500 Index finished up 3.3%... the tech-heavy Nasdaq Composite Index gained 4.3%... the small-cap Russell 2000 Index was 3.4% higher... and the Dow Jones Industrial Average closed up 2.8%.

Notably, the CBOE Volatility Index ("VIX") – a measure of implied volatility based on bullish or bearish options bets on the S&P 500 – fell to below 20, its lowest level since the end of March. Goodbye, fear.

Everything but the utilities sector was higher in the S&P 500. Market and industry bellwethers were also up – like retail and tech giant Amazon (AMZN) up 8%... shipping giant Maersk (AMKBY) up almost 10%... and FedEx (FDX) shares 7% higher.

Gold, one of our favorite recent winners from the "chaos," lost 3%... but is still up 20% for the year, trading around $3,200 per ounce. Bitcoin, which hit $105,000 as the U.S.-China news broke, gave back some gains today... but remains up roughly 30% from its early April low.

So what does the U.S. get out of this tariff détente?...

Apart from a "round trip" in the stock market over the past two months, an easing of economic fears, and freight ships likely embarking from China for U.S. ports again soon (just days after the first ones to encounter the 145% tariff arrived on shore), it's not clear.

At a press conference this morning, before heading to the Middle East on Air Force One, Trump talked up China "opening up" trade to the U.S. He said that both sides can be winners, while lamenting that neither of the trade deals he negotiated with China during his first term have fulfilled what he imagined.

What comes next is hard to say. Mr. Market has no "worst-case scenario" thoughts anymore, but there will still be impacts. A 30% tariff on Chinese imports remains in play, which is close to the original "Liberation Day" number (34%).

But when we look at price action in the market, one belief seems widespread: The Liberation Day unwind is complete.

The market is celebrating like it's March...

Today, the S&P 500 traded back to a similar level – around 5,800 – as intraday trading on March 4 and March 5. So let's take a trip down memory lane...

That's when tariff fears were in their early, escalating days – a month before Liberation Day and the subsequent market panic. Investors were simply contemplating that new tariffs on Mexican, Canadian, and Chinese imports chalked up to fentanyl trafficking concerns.

As we wrote on March 4...

At midnight last night, the White House imposed 25% tariffs on Mexican and Canadian imports and added another 10% to Chinese goods. Canada and China responded with retaliatory measures, and Mexico promised the same to come.

That night, in a speech to a joint session to Congress, Trump warned about volatility that might come to the economy as he embarked on his tariff policy. In our March 5 edition, we quoted Trump and reported on the market's then slide from all-time highs...

"Tariffs are about making America rich again and making America great again. And it's happening, and it will happen rather quickly," Trump said, before adding, "There will be a little disturbance, but we're OK with that. It won't be much."

It won't be much. That was an ad-lib from Trump, but it's emblematic of a really important line to note if you're trying to navigate the market right now: Trump is sensitive to daily market performance, probably more than any president in recent memory...

In the past few weeks, the major U.S. stock indexes have fallen... with the S&P 500 down about 5% from an all-time high on February 19. The postelection "Trump bump" was completely erased as of yesterday's close.

And Treasury yields have dropped, too – as a result of lower growth expectations amid tariff concerns, as we pointed out in Monday's edition. The 10-year Treasury yield, for example, fell about 60 basis points from January 14 through yesterday.

A "little disturbance" indeed, and it is OK for now.

And it also sounds like Trump is now seeking to soften the impact of a tariff war on the economy and markets.

Trump went ahead with things anyway... and overshot expectations for tariff rates.

On April 2, Liberation Day arrived with a chart of high double-digit tariff rates on our major trading partners (corresponding to U.S. trade deficits with those countries) along with a 10% blanket tariff on all imports to the U.S.

Panic ensued for a few days and the S&P 500 dipped into a bear market, down 20% on an intraday basis. Growth concerns were real. Potential recession talk grew louder. And a week after the Liberation Day rollout, Trump acquiesced with a "90-day tariff pause."

That was Step 1 in unwinding the intense market fear. It was a signal that, yes, Trump did care about the market's reaction in both stocks and (importantly) bonds, despite his previous insistence that he didn't.

Today, the new blanket 10% worldwide tariff remains in place, as do the levels threatened on Liberation Day. But the tariffs remain paused. And it looks like the White House is open to negotiating those rates down to get certain concessions on trade-related items or other things – even with China.

This is Step 2 in the unwind. The White House is willing to talk with the biggest target of the tariff policy and the lone nation that retaliated against the U.S. with its own higher tariffs. Reportedly, the White House was also the one to reach out to China to set a meeting, but Chinese officials have also been privately worried about tariff impacts on their own economy.

Bessent said in an interview today that he could see meeting with Chinese reps again within a few weeks. Meanwhile, the White House announced the framework of a trade deal with the U.K. on Thursday, and today Trump said "many other deals are coming."

Given all of this, it seems the market expects any potential tariff impacts to be soft. All the major U.S. stock indexes are back to where they were in March... and the S&P 500 is up 17% from Trump's announced "pause" on April 9.

But risks remain...

From the looks of it, we'll move on to more "normal" concerns now... government spending, inflation, jobs, and the like, with a new tax and spending bill and debt-limit talks happening in Washington. But we'll keep our eyes out for any market surprises.

And while the "worst" tariff impacts may be delayed and we expect a few promising-sounding trade "deals" to come from the White House soon – probably next week after Trump's tour of the Middle East – trade-related risks remain.

Global supply chains have already been unsettled to some degree and prices may rise because of it… small businesses are stressed... the labor market is showing some weakness... and I wouldn't blame any person or business for not believing in any certainty from the federal government.

But for now, market fear has been soothed. The S&P 500 is above its 200-day moving average – a simple technical measure of a longer-term trend – for the first time since March 26. If you "stayed the course," and even acted on good buying opportunities amid the panic a few weeks ago, congratulations. But keep an eye out now for what's next.

New 52-week highs (as of 5/9/25): Alpha Architect 1-3 Month Box Fund (BOXX), Dimensional International Small Cap Value Fund (DISV), EQT (EQT), iShares MSCI Germany Fund (EWG), iShares MSCI Italy Fund (EWI), SPDR Euro STOXX 50 Fund (FEZ), Intercontinental Exchange (ICE), Kenvue (KVUE), Grand Canyon Education (LOPE), Sprott (SII), UGI (UGI), and Wheaton Precious Metals (WPM).

In today's mailbag, feedback on Dan Ferris' latest Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Hey Dan, I would agree with you and Nassim Taleb about 'You know everything is not alright when the government insists otherwise'. But we're not talking about government anymore. This is business and Trump, Bessent and the rest of the Cabinet are running our country like a business. So, the above doesn't apply anymore. Further you can't judge their success in 3 months as everyone in government is trying to do. So send me an email in a year and let's see where we really are?" – Subscriber Nick P.

"Dan, good for you. Politics aside, the erratic activity of this Administration is troubling. One can't help but wonder if the objective is to create opportunities for trading on the volatility. Even more troubling is that the Administration doesn't seem serious about the deficit. This is not going to end well, and your advice has helped me sleep well and minimize the volatility in my own portfolio. My mantra (as a retiree) is capital preservation, and you have guided me well in that regard." – Subscriber Chris S.

"The only way Bessent can find charts that reflect up and to the right is if you price those charts with a fiat currency that has been inflated to oblivion and has lost about 98.5% of its value over the past 60 years.

"If you price the same charts in an honest sound currency such as gold, you won't be seeing any up and to the right." – Subscriber David R.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 12, 2025