Last week was one of the most volatile periods in recent market history, marked by a dramatic plunge followed by a historic recovery after President Trump announced a 90-day pause on his reciprocal tariff plan. These events underscore the market’s acute sensitivity to trade policy and highlight how quickly the global economic landscape can shift in response to geopolitical decisions.

The turbulence began with the implementation of President Trump’s previously announced “reciprocal” tariffs on April 2, which sent markets into a tailspin. However, on Wednesday, April 9, the president stunned investors by declaring a 90-day pause on these tariffs for all countries except China. During this period, tariffs will be set at a baseline of 10%, rather than the higher country-specific rates announced earlier. Meanwhile, tariffs on Chinese imports were immediately increased from 104% to 125%, escalating the U.S.-China trade war.

Equities: From Panic to Euphoria

The equity market’s response to the tariff pause was nothing short of spectacular. The S&P 500 soared 9.5% on Wednesday, marking its biggest daily gain since the 2008 financial crisis. The tech-heavy Nasdaq Composite performed even better, surging 12.16% — its largest gain since January 2001 during the dot-com bubble. The small-cap Russell 2000 Index jumped 8.66%, its best day since March 2020.

The dramatic market rally came after President Trump explained his decision to pause the tariffs, noting that people were getting “yippy” and “afraid.” He acknowledged watching the bond market, where “people were getting a little queasy,” and emphasized the importance of flexibility in policy-making. This historic rally extended to global markets, with Japan’s Nikkei index up approximately 8%, South Korea’s Kospi rising 5.5% and Hong Kong’s Hang Seng gaining over 4%.

However, the euphoria proved short-lived. By Thursday, stocks had pulled back significantly, with the Nasdaq closing down more than 3% as investors remained skittish despite the tariff pause. The volatility continued into Friday, with some analysts warning that “the damage has been done” by the uncertainty created around trade policy, even with the temporary reprieve.

Sector performance varied widely throughout the week. Retail stocks were among the biggest winners following the tariff announcement, with companies like Wayfair surging nearly 20% and Levi Strauss jumping more than 18%. Other consumer-focused companies, like Deckers, Crocs, Nike, Walmart and Target, all posted significant gains as the threat of higher import costs temporarily receded. Conversely, energy stocks faced pressure as oil prices fluctuated in response to global growth concerns.

Bond Market: Unprecedented Turbulence

The bond market experienced its most volatile week in decades, with the turmoil in Treasuries becoming a key factor in the administration’s decision to pause tariffs. U.S. Treasury investors were left bruised despite the temporary pause, as some funds were forced to sell bonds in a dash for cash while others questioned the bonds’ status as the world’s safest asset.

Ten-year Treasury yields were on track for their biggest weekly increase in more than two decades, reaching as high as 4.592% on Friday — the highest since February. Analysts attributed the selling pressure to hedge funds and asset managers who were forced to offload bonds after receiving margin calls amid the extreme market volatility.

The significant policy shift on tariffs came after the 10-year U.S. Treasury bond sold off heavily earlier on Wednesday, with yields rising sharply above 4.5% before retreating somewhat following the announcement. President Trump later told reporters, “I was watching the bond market. The bond market is very tricky. But if you look at it now, it’s beautiful.” The currency markets reflected the broader uncertainty, with the U.S. dollar experiencing significant volatility. By Friday, the dollar had fallen to its lowest level in a decade against the Swiss franc as investors sought safe-haven assets amid the escalating trade tensions with China.

Looking Ahead: The 90-Day Negotiation Window

As markets close the week, attention now turns to the 90-day negotiation window established by the tariff pause. Kevin Hassett, director of the National Economic Council, indicated that around 20 countries have already offered trade deals to the U.S., with some negotiations nearly completed before the pause was announced. He expressed confidence that the 90-day timeline is “very doable” for hammering out these deals.

Treasury Secretary Scott Bessent told reporters that President Trump would be personally involved in negotiating trade deals with individual countries, describing them as “bespoke” arrangements tailored for each nation. Bessent suggested that Trump had created “maximum negotiating leverage” and praised the president’s willingness to face economic pressure to force other countries to reach deals.

The key questions for investors now revolve around what happens after the 90-day period expires. George Saravelos of Deutsche Bank warned that “even if the tariffs are permanently suspended, damage has been done to the economy via a permanent sense of unpredictability in policy.” Other analysts suggested that the 90-day pause merely creates more uncertainty rather than resolving the underlying issues.

We also had some mixed data this week. Inflation came in lower, but inflation expectations did not. Meanwhile, consumer sentiment is sinking fast. Hopefully, the CPI and PPI prints make Federal Reserve officials more confident that inflation was slowing before tariffs come into effect. Soft service prices are likely to continue, helping Fed officials “look through” upcoming goods inflation related to higher tariff rates. Banks also kicked off the earnings season.