Wall Street saw a significant late rally at the end of another volatile week, driven by remarks from a senior Federal Reserve official indicating the central bank’s readiness to step in if market pressures intensified. The week was marked by a strong focus on tariffs. The S&P 500, a blue-chip stock index, increased by 1.8% on Friday, producing a 5.7% gain for the week, marking its strongest weekly increase since November 2023, although it has decreased by 4.4% this month.
The US President’s unexpected decisions regarding tariffs caused significant market fluctuations over the week. On Wednesday, the President announced a pause on substantial reciprocal tariffs for most countries, excluding China, which led to a 9.5% surge in the S&P 500, its best daily performance since 2008. However, on Thursday, selling resumed after warnings from Wall Street banks suggested that substantial duties on China might drive the US into a recession. The volatile policy decisions from Washington have also caused investors to move away from American assets, affecting US government debt and the dollar.
A rally commenced on Friday morning, gaining momentum after Susan Collins, head of the Boston Fed, informed the Financial Times that the central bank was fully prepared to stabilize the markets if they became disrupted. In addition, a Treasury sell-off eased, with the 10-year yield rising by 0.07 percentage points to 4.47% on Friday afternoon, compared to an earlier increase of 0.19 percentage points. The adjustments in Treasury yields also contributed to boosting the stock market.
As stocks rebounded on Friday, the Vix index, which measures expected volatility and is often referred to as Wall Street’s “fear gauge,” dropped to session lows. Despite the rise in equities, investors remain very concerned that tariffs might either decelerate growth or push the US into a recession. James Knightley, chief international economist at ING, noted that “recession risks are real,” highlighting that tariffs would increase prices, reduce spending power, government budget cuts are raising concerns about employment and entitlements, and declining stock and bond markets are diminishing household wealth.
John Williams, head of the New York Fed, stated on Friday that US economic growth was expected to “considerably” slow this year, potentially to less than 1%. He also warned of a potential increase in inflation to 4%, up from under 3% currently, and a potential rise in unemployment. Williams added that “a pervasive sense of uncertainty is becoming increasingly evident,” particularly in softer economic indicators such as surveys and business contact information.
Torsten Sløk, chief economist at Apollo Global Management, emphasized the multiple factors influencing bond markets, questioning whether Treasury yields are rising due to foreign investor actions, general risk reduction, or basis trading, describing the situation as “a perfect storm for the bond market.”
In the commodities sector, oil prices rose by over 2% on Friday after US Energy Secretary Chris Wright indicated that the US might curtail Iran’s oil exports to prevent Tehran from advancing its nuclear capabilities. Brent crude futures closed up $1.43 at $64.76 per barrel, a rise of 2.26%, while West Texas Intermediate, the US standard, ended up 2.3% at $61.50. This ended a tumultuous week for oil markets as investors assessed the impacts of a US-China trade war on the global economy. Wright’s statements regarding Iran led to a rebound in oil prices from earlier losses, as markets evaluated the potential for US measures against Iran to decrease global oil supplies. Wright is currently on a two-week visit to the Middle East.