After weeks of stock market declines, especially in the tech sector, stocks had a little bounce. Some Wall Street analysts are finding reasons to be optimistic. Strategists say that while uncertainty and volatility may persist in the short term, the market is pricing in solid fundamentals in the longer term. Auto tariffs have been the latest headlines that have sent the market grappling to determine these tariffs’ exact effects and terms.
Last week, the Federal Reserve’s policy meeting conveyed an optimistic outlook, with officials expressing expectations for two interest rate reductions later this year. Fed Chair Jerome Powell emphasized the uncertainty surrounding the economic forecast, primarily due to President Donald Trump’s trade conflicts. Stock prices rose amid ongoing tariff discussions, suggesting that the harshest tariffs are unlikely to be enacted.
Fed officials acknowledged an increase in inflation expectations alongside reduced growth forecasts for the near and medium future. The Fed adjusted its GDP growth prediction for this year to 1.7%, down from the earlier estimate of 2.1%. Despite a slight rise in near-term inflation forecasts and a significant downgrade in GDP growth, Fed Chair Powell maintained a flexible approach, minimizing long-term tariff-related inflation concerns. He downplayed the influence of recent inflation data, emphasizing that the Fed’s long-favored “5-year, 5-year” forward inflation rate remains stable. Even with short-term inflation pressures, Powell’s reluctance to consider tightening indicates that the Fed perceives the recent economic slowdown as genuine but not indicative of a recession. He pointed out that jobless claims and broader labor market indicators continue to be robust, and he dismissed recent declines in sentiment as not yet evident in the hard data.
On Friday, investors felt relief as stocks achieved their first weekly gain since mid-February, thanks to an unexpected surge following the Fed’s March meeting. Major indexes all outperformed, spurred by reports that the upcoming tariffs from the Trump administration, scheduled to be implemented on April 2, could be less extensive than earlier estimates.
At the same time, consumer confidence has sharply declined due to news of trade wars, government job cuts, and persistent inflation.
On Tuesday, the closely monitored Conference Board consumer confidence monthly survey revealed that expectations have dropped to their lowest point in twelve years—a level that typically indicates a recession.
Earlier this month, stocks fell into correction territory, which indicates a 10% decline from their latest peak. Despite this, the market shows little movement over the past six months, and stocks have risen over 11% in the last year.
Many believe earnings will remain in good shape, and tax cuts could be on the horizon. The Fed is also winding down quantitative tightening—the process by which it trims its holdings of bonds to help slow the economy and fight inflation. This helps explain why stocks rose after last week’s Fed meeting, even though officials indicated that inflation is still above their target and growth is poised to slow. Taken to their extreme, lower growth and higher inflation could create a stagflationary scenario, but not one that is likely an immediate risk for the economy.
Some feared that the Fed thought inflation was rising enough that it would not cut rates and might have to hike them this year. Central bankers sent a much more dovish message as Fed officials suggested that they are ready to step in should the economy slow, even if that means letting inflation run slightly above target.
It is also important to note that the Trump administration’s goals go beyond tariffs and may eventually boost stock performance rather than suppress growth. The equity market remains mindful of the idea of a lower-regulatory, lower-tax landscape. Over time, the administration will likely focus on cutting regulations and maintaining tax policies to support future economic activity. Investors need to consider this positive dynamic in their long-term strategies despite the recent market unease caused by new tariff announcements.
After the markets gain clearer insight into trade policy and tariffs, they may rely on the assumption of a solid economy, slightly elevated inflation, and a positive earnings forecast. A clear and more detailed tariff plan—particularly if it avoids broad retaliation—could trigger a strong relief rally. Some of this is reflected in prices, but as the market declines and waivers, investors seem increasingly reluctant to extend the benefit of the doubt.
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David Rosenstrock, CFP®, MBA, is the Director and Founder of Wharton Wealth Planning (https://whartonwealthplanning.com/ ). He earned his MBA from the Wharton Business School and B.S. in economics from Cornell University. He is also a CERTIFIED FINANCIAL PLANNER™.