Did markets get Liberation Day all wrong?

Markets bounce back from their excessive early-April despair on optimism that growing pragmatism can resolve the Trump tariff tangle and signs that US corporates can still prosper in the new era.

07 May 2025

It’s been just over a month now since the infamous “Liberation Day” tariff announcements, a day the pro-trade Economist newspaper described as ‘Ruination Day’.

Many analysts and commentators predicted - not unreasonably - a cratering of global economic growth, with the IMF’s latest World Economic Outlook declaring that “Global growth is expected to decline and downside risks to intensify as major policy shifts unfold.” But here’s the curious thing: by early May the S&P 500 and the tech-heavy Nasdaq 100 indices had fully recovered their losses, having shed an eye-watering 12% and 13% respectively from 2 April Liberation Day to their trough on 8 April.

What can possibly explain the recovery?

Disconcerting as it may seem, President Trump himself has been helpful by announcing a 90-day reprieve on most tariffs from 9 April. While China was not included in this list, there have been strong hints by the US administration that some kind of accommodation could be reached if China were willing to approach them. Perhaps more fascinatingly though has been the response of US corporations and the picture of imaginative expediency and resilience that is starting to emerge.

How the tech sector’s tariff flexing helped fuel the rally

In particular, the technology sector which dominates the S&P 500 is showing that there can be life after tariffs. Apple and Amazon are most exposed to them but Apple is already moving production out of China with most devices for US resale now coming from India and Vietnam, only slightly impacting its margins. Amazon is engaging in forward buying to mitigate tariff effects while the firm’s CEO noted that not all third-party sellers will raise prices. As for Meta and Google, both have reported solid sales so far in Q2 while the former is outright lifting its capital expenditure forecast with a USD 72 billion spend slated for artificial intelligence. And Microsoft’s sales forecasts remained strong as corporate sector IT spending remains broadly unaffected by the tariffs. In an ironic twist the biggest ‘problem’ facing the stock market before Liberation Day was the outlook for richly valued technology stocks but in recent weeks this same sector has done much to pull the market out of its nosedive.