Wall Street’s Tariff Bounce Fizzles—Bull Run Hits a Speed Bump

After clawing back from trade-war panic, the US stock rally sputters—because nothing kills momentum like ’uncertainty’ (and overpaid analysts).

Markets dip as traders remember tariffs exist—just in time for the Fed’s next existential crisis.

Bonus jab: Another day, another ’correction’ that somehow only hurts retail investors.

Volatility returns as tariff risk, Fed uncertainty drag sentiment

Trump’s trade war antics, this time aimed at both Brussels and Silicon Valley, spooked an already jittery market. His latest comments fueled fears of more tariffs just as the last round of China duties had been paused. That earlier pause was one of the big drivers behind the recent rebound, and its effect appears to have faded.

Bespoke Investment Group tracked 15 cases where the stock market bounced more than 15% from a major low to within 3% of a prior high. Their conclusion: while short-term results were random, six months later the market had been higher in every case—up about 10% on average. Still, even they admitted the path isn’t smooth. Past exceptions include the period before the Global Financial Crisis and the months leading into the COVID crash.

Real-time data shows the rally cooled at the exact moment volatility started creeping up. The CBOE Volatility Index never dropped below 18 through the recovery. By Friday, the VIX jumped to 22, responding to Trump’s online threats, even as the S&P 500 finished off its lows before the holiday weekend.

Tony Pasquariello, head of hedge-fund coverage at Goldman Sachs, said risk appetite had already started to slow down. “Relative to recent trend, the intensity of demand is clearly slowing,” Tony noted. Hedge funds are still cautiously exposed to equities, but they aren’t chasing upside without a fresh wave of optimism.

Yields climb while investors question market support

Rising yields in the Treasury market also played a major role in halting the stock run. The 10-year Treasury yield climbed above 4.5% again, hitting a level it reached multiple times in 2023. The five-year yield stayed flat at its two-year average, but the 30-year jumped above 5%.

For equity traders, these higher yields created worries about the strength of the economy, ballooning federal debt, and the chances of capital flowing out of risk assets.

Budget talks in Congress haven’t helped. Investors are still waiting on final terms of the government’s spending package. Meanwhile, the Fed is preparing for its last meeting of the summer, with no clear direction ahead. That’s left everyone stuck watching a market that feels frozen—no crash, but no conviction either.

Even with the S&P 500’s bounce, the underlying tension hasn’t gone away. Bank of America pointed to one reason why: while the federal government is buried in debt, companies aren’t. Leverage in the corporate world is much lower compared to equity values. That’s created some breathing room, but it hasn’t fixed the bigger problems.

Long-term Treasuries have delivered weak returns. Their trailing 10-year total return is far below average, while the S&P 500 has returned 12.7% over that same window. That gap shows why some fund managers are treating bonds with suspicion and hunting for new ways to protect portfolios outside the old 60/40 model.

Back in the equity space, the S&P 500 ended last week at 5,800. That level was the breakout point after the China tariff pause, and also the same zone it cleared following Trump’s win in November.

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