US stocks thanks tariff drama with strong comeback

US stocks thanks tariff drama with strong comeback

After a dramatic market decline over the past three trading sessions, investors on Wall Street were looking for a reason to take a breather. And they seem to have found one, at least for now.

Market development and futures

Dow futures rose 700 points, or 1.8%, on Tuesday. S&P 500 futures also rose 1.3%, while Nasdaq futures closed 1% higher. Stock prices have seen a dramatic decline in recent days as Wall Street expressed confident fears that the Trump administration's tariffs could tip the U.S. and global economies into recession. However, after three days of market collapse, investors appeared to be looking for buying opportunities again.

Valuation of stocks and economic uncertainties

The price-to-earnings ratio of S&P 500 companies fell below 17 on Monday - a historically favorable level that gives investors an opportunity to buy stocks they believe are oversold. However, there is no guarantee that share prices will remain stable. After imposing sweeping 10% tariffs on nearly all products imported from outside the United States on Saturday, the Trump administration also plans to impose significantly higher tariffs on dozens of countries. These tariffs, which Trump describes as "reciprocal," could be as high as 50% for some countries - and tariffs on China could rise as high as 70%.

Trade war and the global impact

Trump also threatened to impose an additional 50% tariff on China if the country does not withdraw from its retaliatory tariffs. China's finance minister said on Tuesday that the country is ready to fight until the end of the trade war and continue to oppose Trump. An escalation in the trade war could lead to a U.S. and global recession this year, according to several Wall Street banks, including Goldman Sachs and JPMorgan Chase.

Trump administration optimism

Despite market jitters, some members of the Trump administration are already declaring victory. Peter Navarro, Trump's chief trade adviser, was optimistic about the market on Fox News Monday night: "It's just finding the bottom. It's going to be the companies in the S&P 500 that are producing here first. Those are going to lead the recovery. Dow 50,000. I guarantee that and I'm not guaranteeing a recession."

Warnings from the economy

Navarro's optimism contrasts with warnings from JPMorgan Chase CEO Jamie Dimon, who stressed in his annual letter to shareholders on Monday that Trump's tariffs would raise prices, slow the global economy and weaken America's standing in the world. Even some of Trump's allies, including Elon Musk and Bill Ackman, warned of the negative impact of tariffs based on highly questionable reasoning.

International markets on the upswing

Nevertheless, stock markets worldwide rose on Tuesday. Most Asian stock indexes closed higher, with Japan's Nikkei 225, which tracks more than 200 of the country's largest listed companies, gaining 6%. In South Korea, the Kospi closed 0.3% higher, while Australia's ASX 200 rose 2.3%. Hong Kong's Hang Seng Index, which includes the largest listed companies from Hong Kong and mainland China, ended Tuesday up about 1.5%. It had previously fallen over 13% in a day, the biggest decline since the 1997 Asian financial crisis.

In Europe, the STOXX 600 index rose by 1.4%. France's CAC index rose 1.6%, while Germany's DAX rose 1.3% and London's FTSE 100 rose 1.9%.