Since the announcement of sweeping tariffs by President Donald Trump last week, a palpable unease has taken hold on Wall Street.
As stock prices tumbled and investors witnessed a sell-off of U.S. Treasurys, concerns grew that a foundational belief from the prior Trump administration may no longer hold true.
The market’s turmoil revealed Trump’s willingness to endure investor pain beyond expectations. Consistently, he and his officials have indicated that the administration would maintain its stringent tariff policies, suggesting that such sacrifices might be necessary for the benefit of the broader economy.
“It was astonishing to witness last week’s market performance, as traders recalibrated their expectations for the economic implications of a second Trump administration,” noted R. Scott Siefers, an analyst at Piper Sandler, earlier this week.
Consequently, investors were relieved when Trump announced shortly after 1 p.m. ET on Wednesday that he would roll back the highest tariffs for most countries, excluding China. This decision triggered the largest one-day rally in the S&P 500 since the 2008 financial crisis.
Despite a presidency characterized by a willingness to challenge the boundaries of executive power—evidenced by the reshaping of federal agencies and significant layoffs—the event underscored that the market still reacts to figures like JPMorgan Chase CEO Jamie Dimon, who helps interpret market dynamics.
Later on Wednesday, Trump informed the press that he had changed course after observing the market’s reaction—which he described as “yippy”—and he acknowledged taking Dimon’s morning warning about the potential recessionary impact of the tariffs to heart.
Dimon’s earlier appearance on Finance Newso News had been scheduled well in advance and was not intended as a last-ditch effort to influence the president, according to a source familiar with the JPMorgan CEO’s calendar.
Market Tensions
Trump and his advisors were particularly alarmed by the possibility that his tariff policy might provoke a global financial crisis, especially as U.S. government bond yields surged, according to insiders who informed the New York Times.
“The stock market, bond market, and capital markets serve, to some extent, as a check on government actions,” remarked Mike Mayo, an analyst at Wells Fargo. “There were signs of strain in segments of the bond market, with some trades experiencing significant disruptions. You can push hard, but not to the breaking point.”
During times of uncertainty, investors typically flock to Treasurys, but the recent sell-off suggested a notable withdrawal by institutional or sovereign investors, which in turn heightened borrowing costs for the government, businesses, and consumers. This development could have prompted the Federal Reserve to step in, as it has done in past crises, to reduce rates or act as a buyer of last resort for government bonds.
“The bond market was signaling a significant crisis was on the horizon,” said veteran market analyst Ed Yardeni during an interview with Finance Newso’s Scott Wapner.
Yardeni explained that it was the so-called “bond vigilantes”—investors who act as enforcers against government behavior seen as threatening repayment—that drew Trump’s attention.
Amid the market volatility, Wall Street executives expressed concerns that their influence had diminished compared to the first Trump era, when former Goldman Sachs executives like Steven Mnuchin and Gary Cohn held significant sway.
Nevertheless, recent events have illustrated that Trump remains intent on reshaping the global economic landscape, embracing an adversarial approach toward trading partners that may heighten volatility.
Impact on Financial Institutions
As the year began, banks were viewed optimistically given their critical role in lending to both corporations and consumers.
Analysts, including Mayo, described the context as one of the most promising in decades, with expectations that a robust economy would drive loan demand, combined with lower interest rates, deregulation, and a rise in mergers and IPOs.
However, by last weekend, bank stocks found themselves in bear market territory, erasing all gains since the election amid fears that Trump was steering the economy toward recession. Reports are likely to show that corporate deal-making has slowed as leaders adopt a more cautious approach.
“We refer to it as the chaos discount,” stated Brian Foran, an analyst with Truist bank.
Foran and several analysts noted that the uncertainties stemming from Trump’s policies make it challenging to predict recession risks, identify potential beneficiaries and losers in a trade conflict, and ascertain valuations of financial institutions.
All eyes will now turn to JPMorgan, which will kick off the first-quarter earnings season on Friday, with investors eager to hear from Dimon and other executives regarding economic health and the impact of tariff negotiations on consumers and businesses.
While Wednesday’s tariff reprieve provided a moment of relief, markets continued to show signs of decline the following day. The ongoing trade tensions between the world’s two largest economies remain unresolved, with significant vulnerabilities on both sides, and a clearly defined path to a resolution yet to be identified. Furthermore, universal tariffs of 10% remain in effect.
“We came quite close to a crisis point, and it’s an unsettling position to be in,” remarked Mohamed El-Erian, chief economic advisor for Allianz, on Wednesday during a Finance Newso segment. “We must avoid reaching that state once more. Repeatedly approaching that brink increases the risk of crossing it.”
