Global Stock Markets Rebound 0.8% Despite Tariff War, Fed Rate Cut Hopes

In April, global stock markets experienced a dramatic "deep V" rebound, seemingly unscathed by what was described as an unprecedented tariff war. This phenomenon was attributed to several factors, including market expectations of a recession and the subsequent anticipation of interest rate cuts by the Federal Reserve. The market's logic of "bad news is good news" was once again invoked, as investors hoped that economic downturns would prompt the Federal Reserve to lower interest rates, thereby stimulating the economy.

Despite the tumultuous market conditions brought on by Trump's tariff policies, global stock markets managed to close the month with slight gains. This surprising recovery was largely due to measures taken by the Trump administration to soften its trade policies, which reassured investors that further steps would be taken to mitigate the impact of tariffs if economic data worsened and markets experienced another downturn.

However, not all analysts were optimistic. Some viewed the market's rebound as a temporary calm before the storm, arguing that the lack of sufficient economic data in the past week had left the market directionless. This sentiment was echoed by Jeff Blazek, co-chief investment officer of multi-asset at Neuberger Berman, who described the recent stock market rally as a "calm in the eye of the storm."

Throughout April, the global stock market experienced a rollercoaster ride. The S&P 500 index saw a 0.8% decline, while the Dow Jones Industrial Average fell by 3.2%. Conversely, the Nasdaq Composite Index managed to close the month with a 0.9% gain. Despite these fluctuations, the overall performance of the market was relatively stable, with the Nasdaq experiencing a 16% maximum drawdown in the first week of the month, followed by an 18% rebound in the subsequent weeks.

The market's resilience was also reflected in the performance of individual stocks. Apple, for instance, saw its stock price plummet due to its reliance on overseas manufacturing. However, after the government announced exemptions for mobile phones, computers, and other tech devices, Apple's stock price rebounded significantly. On a single day in April, Apple's stock rose by 0.6%, but it still ended the month with a 4.4% decline.

While the stock market experienced significant volatility, other asset classes also showed notable movements. The U.S. dollar depreciated by over 4% in April, marking its largest monthly decline since November 2022 and the second-largest since September 2010. In contrast, gold prices surged by nearly 6%, continuing a four-month upward trend. Bitcoin also performed strongly, with a 14% increase for the month, its best performance since the November elections. However, the oil market lagged behind, with WTI crude oil experiencing its worst monthly performance since November 2021, closing at its lowest level since February 2021.

Behind the market's performance were two distinct trends. First, there was a divergence between "hard" and "soft" economic data in the U.S. While overall economic data for April was disappointing, there was a significant gap between strong "hard" data and collapsing "soft" data. This discrepancy left investors struggling to assess the impact of tariffs on the economy, as they had to balance pessimistic consumer sentiment data with stable but lagging household spending and corporate investment reports.

Second, there was a divide among market participants, with institutional investors and retail investors taking opposing stances. Despite the S&P 500 index rising by 14% from its intraday low on April 7, the market's price-to-earnings ratio climbed above 20, and the net leverage of U.S. fundamental long-short funds had risen from its absolute low point, but it remained at a relatively low level overall, indicating that institutional investors were still cautious. In contrast, retail investors in the U.S. stock market continued to aggressively buy, particularly in the Nasdaq market, reflecting their optimistic sentiment.

In summary, the market's deep V rebound in April was driven by a combination of factors, including the Trump administration's measures to soften trade policies, the anticipation of interest rate cuts by the Federal Reserve, and the market's logic of "bad news is good news." However, the underlying economic data and the divide among market participants suggest that the market's resilience may be temporary, and further volatility could be on the horizon.