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U.S. Stock Market Rallies Amidst Trade War Uncertainty

New York (AP) — On Wednesday, U.S. stocks experienced a notable uptick, fueled by a global rally that ultimately reached Wall Street. This resurgence followed President Donald Trump’s apparent softening of his earlier criticisms directed towards the Federal Reserve and his aggressive rhetoric surrounding the ongoing trade war.

Strong Gains in Major Indices

The S&P 500 surged by 1.7%, building upon the significant gains it had amassed on Tuesday, which had effectively compensated for a severe drop on Monday. The Dow Jones Industrial Average experienced an increase of 419 points, marking a 1.1% rise, while the Nasdaq composite saw even more substantial gains, climbing by 2.5%.

These gains in the U.S. markets coincided with impressive upward movements in stock markets across Europe and Asia. This trend mirrors the tumultuous, volatile nature of the financial landscapes, as investors grapple with how best to respond amidst lingering uncertainty over President Trump’s economic policies.

Trump’s Reassuring Remarks on the Federal Reserve

Part of the market’s upward trajectory can be attributed to Trump’s remarks made late Tuesday, where he declared he has “no intention” of dismissing Jerome Powell, the head of the Federal Reserve. Previously, Trump had expressed his dissatisfaction with Powell, labeling him “a major loser” due to what Trump deemed the Fed’s reluctance to lower interest rates.

The tough rhetoric expressed by Trump had instilled fear among investors, primarily because the Federal Reserve is traditionally meant to operate independently, making decisions based on long-term economic stability rather than bowing to political pressures. This independence is crucial, especially when making decisions that may involve short-term pain for the promise of long-term economic health.

Interest Rates and Tariff Implications

While a reduction in interest rates by the Federal Reserve could provide a beneficial boost to the economy, it also carries the risk of heightening inflation levels. Economists caution that Trump’s imposition of tariffs might not only create a slowdown in economic growth but also contribute to a temporary inflation spike.

There is speculation that Trump may have recognized the apprehension within the market concerning potential actions against Powell. Additionally, there are insights suggesting that he might want to maintain Powell in place as a potential scapegoat should economic conditions deteriorate, especially in the event of a recession.

According to Thierry Wizman, a strategist at Macquarie, “Indeed, if the Fed cuts its policy interest rates aggressively, Trump would have little excuse for a recession apart from the pugnacity of his tariff policies.”

Tariff Developments Boost Market Sentiment

Markets rallied further following Trump’s assertion that U.S. tariffs on imports from China could be significantly lowered from the current 145% rate. “It won’t be that high, not going to be that high,” Trump stated, suggesting a potentially less combative approach towards China moving forward.

Optimism along Wall Street has been buoyed by hopes that Trump will scale back tariffs after negotiating trade agreements with various countries. On Tuesday, he indicated a willingness to adopt a more amicable posture towards China, particularly in dealings with Chinese President Xi Jinping. Treasury Secretary Scott Bessent echoed this sentiment, asserting, “There is an opportunity for a big deal here.”

In the event that Trump succeeds in lowering tariffs substantially, many investors believe that the specter of a recession could be mitigated.

Business Sentiments Amid Trade Tensions

U.S. businesses are increasingly feeling the ramifications of the ongoing trade war’s uncertainties. A recent preliminary reading of U.S. business activity plummeted to a 16-month low, exacerbated by the fear of tariffs driving up prices for goods and services, as indicated by S&P Global’s latest survey released on Wednesday.

This pervasive uncertainty has prompted analysts on Wall Street to predict that erratic fluctuations in the financial markets are likely to persist. Tim Waterer, Chief Market Analyst at KCM Trade, asserted that the market will “more likely than not continue to be dictated by Trump’s latest whims regarding tariffs and trade.”

Market Indicators and Tech Sector Performance

Despite such instability, the S&P 500 remains 12.5% below its peak reached earlier this year, having previously dipped roughly 20% below this mark. Intraday market fluctuations have become frequent, oscillating dramatically within hours, as Trump’s comments and actions continue to surprise investors. On Wednesday, for example, the S&P 500 rose by as much as 3.4% in the morning before retracting much of that gain as the day unfolded.

Trump’s latest statements had a moderating effect on the bond market as Treasury yields eased. This was a significant turnaround from earlier in the month when rising Treasury yields caused concerns that Trump’s policies were dissuading investors from the U.S., thereby diminishing the bond market’s status as a refuge for cash.

As a result, the yield on the 10-year Treasury note fell to 4.38% from 4.41% late Tuesday, dipping as low as 4.26% in early trading.

Positive Traction in the Tech Sector

On Wall Street, technology stocks played a vital role in propelling stock indexes higher. Nvidia saw a gain of 3.9%, recovering some of the sharp losses it incurred last week after revealing that U.S. restrictions on exports of its H20 chips to China could negatively impact its first-quarter results by $5.5 billion. Nvidia’s stock performance was a significant factor in supporting the rise of the S&P 500.

Other companies within the artificial intelligence technology ecosystem also contributed positively. Vertiv Holdings, a pioneer in the manufacturing of computer room air conditioning, jumped 8.5% after exceeding analysts’ expectations regarding profit and revenue for the latest quarter; they noted ongoing, increased demand stemming from AI data centers. Similarly, Super Micro Computer, known for its AI server solutions, rose by 7.6%, and Palantir Technologies saw its stock climb by 7.3%.

Tesla’s shares increased by 5.4% after CEO Elon Musk declared he would prioritize managing his electric vehicle company over time spent in Washington following a significant profit drop, exacerbated by backlash against Musk’s cost-cutting initiatives.

Summary of Market Indicators

In summary, the S&P 500 rose by 88.10 points, reaching 5,375.86. The Dow Jones Industrial Average increased by 419.59 points, closing at 39,606.57, while the Nasdaq composite rose by 407.63 points, reaching 16,708.05.

Globally, stock markets also reflected positive trends, with indexes in France up by 2.1%, 2.4% in Hong Kong, and 1.9% in Japan, although shares in Shanghai experienced a minor setback, dipping by 0.1%.

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AP Business Writers Yuri Kageyama and Matt Ott contributed to this report.

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