Recent market volatility stemming from U.S. President Donald Trump’s abrupt “Liberation Day” tariff announcement seems to be calming down. However, uncertainty regarding future market conditions continues to cast a shadow over investor sentiment.

Capital Economics suggests the worst turmoil might be behind us, largely due to the exemption of electronic goods from tariffs and a 90-day pause on reciprocal tariffs, providing a boost for tech stocks.

Resilience in the Tech Sector

• Recovery in Tech Stocks: Many tech companies, originally hit hard during the initial turmoil, are rebounding as investor confidence grows following the tariff pause.

• Dollar Weakness: Overall, U.S. equities have trended down compared to global indices, as the U.S. dollar has weakened significantly since early April.

Trade War and Economic Projections

• Capital Economics’ Base Case: A projection where a 10% tariff is imposed on all countries (excluding China). Here, U.S. economic activity may slow but is unlikely to trigger a recession, allowing the S&P 500 to stabilize around 5,500 by year’s end.

• Treasury Market Expectations: Anticipated easing for long-dated U.S. Treasury market challenges, albeit with the Federal Reserve likely holding rates steady into 2026.

U.S. Dollar and Broader Economic Outlook

• Dollar Forecast: A modest recovery of the U.S. dollar is expected by year-end, although it is unlikely to completely recover from losses since February.

• Wider Risks: Potential outcomes have widened considerably, with serious downside risks owing to ongoing policy uncertainty and volatile global economic landscapes.

Conclusion

Investors must remain vigilant, staying informed about macroeconomic shifts while navigating the uncharted waters of policy adjustments that could impact market dynamics.