Stocks Edge Higher as Trade War Easing Hopes Lift the Dollar

Amid ongoing trade tensions, U.S. stocks and the dollar have found fleeting optimism this month as investors bet on a potential de-escalation of the global trade war. While markets remain volatile, hopes of reduced tariffs and geopolitical calm have nudged equities upward and stabilized the greenback. However, the path forward remains fraught with uncertainty.

Trade War Developments: A Fragile Truce?

The trade landscape in April 2025 has been marked by a mix of aggressive policies and tentative compromises. The U.S. imposed its broadest tariffs since the 1930s on April 2, levying 10–50% duties on imports from 180 countries. Yet, recent signs suggest a tactical pause:
- China softened tariffs on U.S. semiconductors and pharmaceuticals, easing pressure on its tech and healthcare sectors.
- The U.S. suspended “reciprocal” tariffs for 90 days for all countries except China, while extending exemptions for Canada and Mexico under the USMCA trade deal.

These moves, though limited, have calmed investor nerves. A Bank of America survey found that 73% of global fund managers now plan to reduce U.S. equity holdings, but the partial truce has stalled a deeper sell-off.

The Dollar’s Surge: A Delicate Recovery

The U.S. dollar initially plummeted after the April 2 tariffs, defying economic theory that tariffs should strengthen the currency. The Bloomberg Dollar Index dropped to multiyear lows as investors rebalanced portfolios into euros and yen. However, hopes of easing tensions have since stabilized the dollar:

• The dollar rebounded by 2.2% from April 7–11 against a basket of major currencies, aided by reduced geopolitical uncertainty.
• Emerging markets, however, saw mixed results: The Thai baht and South African rand weakened, while China and India’s currencies held firm due to rigid exchange controls.

The dollar’s recovery reflects a short-term reprieve, but long-term risks linger. The Tax Foundation estimates that tariffs will reduce U.S. GDP by 1.0% in 2025, with households facing an average $1,243 tax hike from higher prices.

Corporate Earnings: Winners and Losers

The trade war’s uneven impact is starkly visible in corporate results:
- Tesla plummeted, losing over 40% of its value year-to-date as European sales collapsed and scrutiny mounted over Elon Musk’s political ties.
- Alphabet (Google’s parent) bucked the trend, rising 2% on strong earnings, while Intel fell 7% after warning of tariff-driven recession risks.
- T-Mobile dropped 11.5% after missing subscriber targets, and Skechers withdrew its 2025 guidance entirely, citing policy uncertainty.

Fed and Policy Risks: A Delicate Balancing Act

The Federal Reserve faces a precarious balancing act. Fed Chair Jerome Powell has resisted calls to cut rates, but Trump’s public clashes—dubbing him “Mr. Too Late”—have rattled markets. The 10-year Treasury yield dipped to 4.26%, reflecting some investor calm, but bond markets remain sensitive to policy shifts.

Gold, a traditional safe haven, hit a record $35,000 per ounce, underscoring lingering distrust in the dollar’s stability.

Broader Economic Outlook: Storm Clouds Loom

Despite April’s modest gains, the economic backdrop remains grim:
- The IMF forecasts U.S. GDP growth to slow to 1.8% in 2025, down from 2.8% in 2024.
- Consumer sentiment hit its lowest level since 2022, with households citing “ongoing uncertainty around trade policy.”
- JP Morgan warns of a 60% chance of a global recession, driven by trade disputes and rising borrowing costs.

Conclusion: A Fragile Rally, But Risks Persist

While stocks and the dollar have edged higher on hopes of trade war easing, the gains are fragile. The U.S. dollar’s rebound relies on continued tariff pauses and diplomatic progress, which remain far from guaranteed. Key risks loom:
- China’s retaliation: Beijing’s 125% tariffs on U.S. exports threaten to deepen trade imbalances.
- Corporate profits: Companies like Tesla and Intel face headwinds from cost pressures and demand slowdowns.
- Fed policy: Any misstep in interest rate decisions could reignite volatility.

Investors should remain cautious. While short-term optimism supports equities and the dollar, the path to sustainable growth requires a lasting resolution to trade tensions—a tall order given the political posturing on both sides. As markets navigate this uncertainty, diversification and a focus on defensive sectors may prove prudent.

The data is clear: without meaningful de-escalation, the gains of April 2025 could prove fleeting.