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What happened?
The S&P 500 rallied 1.7% on Wednesday, recovering a part of its recent losses, as optimism grew that US-China trade tensions could soon ease and concerns over Federal Reserve leadership faded. Earlier in the day, the index traded as much as 3.4% higher, but gave back some of those gains after Treasury Secretary Scott Bessent clarified that there is no unilateral US offer to cut tariffs on China.

US President Donald Trump indicated that the current 145% tariff on Chinese imports could be “substantially” reduced, and press reports suggested the administration is considering lowering tariffs to between 50% and 65%, provided China reciprocates. The Financial Times later reported Trump is contemplating “destacking” duties on imports of car parts from China, with the auto sector lobbying for additional exemptions to incremental tariffs over fentanyl complaints as well as sector tariffs on steel and aluminum products.

The tech-heavy Nasdaq also rose 2.5% led by NVIDIA and Apple after Trump signaled a willingness to take a less confrontational approach to trade talks. Despite falling short of earnings expectations on Tuesday, Tesla’s stock price jumped on both hopes of easing tariff pressures and comments from CEO Elon Musk about reducing his government commitments.

Investors were further reassured as Trump stated late Tuesday that he has “no intention” of removing Fed Chair Jerome Powell, helping to calm fears over central bank independence.

In another sign of improving market sentiment, gold gave up more of its recent gains. Having hit a record high above USD 3,500 per ounce on Monday, the precious metal has retreated to USD 3,334/oz at the time of writing.

Wednesday’s bounce builds on a strong prior session, with the S&P 500 and tech-heavy Nasdaq both jumping more than 2% as markets attempt to stabilize after a period of heightened volatility. However, both indexes are still lower so far in April and are on track for a third consecutive monthly decline. With concerns over the Trump administration's tariff policy resurfacing on Thursday, S&P 500 futures pointed to a weak start to US trading, with a decline of 0.7% at the time of writing.

What do we think?
The latest shift in tone from the White House has rekindled confidence in the “Trump put”—the notion that when tested by the market, the president will soften his stance—whether on trade or Fed independence. The administration’s potential willingness to substantially reduce tariffs against China supports our base case that the effective US tariff rate ex-China will settle in the 10-15% range, with Canada and Mexico largely exempt.

We expect volatility to remain elevated as negotiations continue, but recent developments suggest a less aggressive approach to resolving trade disputes. The market’s strong rebound reflects growing confidence that the most adverse outcome can be avoided, though upcoming news flow will likely continue to drive short-term swings.

With regard to the Fed, Trump’s assurance that he has “no intention” of removing Chair Powell helps ease concerns about central bank independence, even if the rhetoric remains noisy. While the Fed has maintained a cautious approach to monetary easing, we believe it will be willing and able to respond to signs of economic weakness, especially rising layoffs. Our base case is for rate cuts of 75-100 basis points this year, which should help support market sentiment.

How to invest
The latest signals from the Trump administration underscore that market volatility is likely to persist until there is greater clarity on the direction of tariff policy. Against this backdrop, we recommend the following strategies:

Look through volatility. For investors who were under-invested going into the sell-off or are willing to take on near-term risk for likely long-term reward.

• Phase into stocks. While volatility will likely persist, we view US equities as Attractive, with a year-end S&P 500 target of 5,800. Phasing into the market can be an effective way to position for medium- and longer-term upside while managing timing risks. Capital preservation strategies can be another way to manage near-term downside risks.
• Transformational Innovation Opportunities (TRIOs). We continue to see strong long-term potential in our TRIOs— Artificial intelligence, Longevity, and Power and resources. While companies exposed to each of these ideas have been caught up in near-term derisking, we expect structural trends to be the biggest drivers over the long term, and the recent sell-off provides a potential opportunity for investors to build structural exposure.

Manage volatility. For investors concerned about the near-term risks and looking to hedge portfolios against potential further downside.

• Gold. Gold has continued to serve as an effective hedge amid ongoing trade uncertainty. Despite a retreat from consecutive all-time highs, the precious metal has gained 24% since the start of the year. And we see further upside potential, with our base case targeting USD 3,500 per ounce by year-end versus USD 3,334/oz at the time of writing. We continue to see support from investment demand, ongoing central bank diversification, and a volatile macro backdrop.
• Seek durable income. Recent developments have added a political risk premium to US Treasuries, reflected in a higher yield. However, we expect this to be a step change rather than an ongoing process. With yields now high, we believe US Treasuries will offer portfolio diversification benefits and should perform well in the event of a slowdown in US growth.

Take advantage of volatility. For investors unsure about the near term but looking to utilize high levels of volatility to earn additional portfolio income.

• Seek sell-off opportunities. We believe recent volatility has created select attractive opportunities at a single-stock and individual-market level, with various companies with good longer-term prospects now trading at more attractive valuations. In the US, we highlight 20 US companies across a range of sectors that are higher quality, have solid business models, and offer, in our view, good longer-term value (see “Sell-off opportunities – Global,” published on 17 April). In Europe, our “Six ways to invest in Europe” list focuses on defensive champions that can benefit from increased market volatility, as well as from likely higher European defense spending and fiscal stimulus.