By Teresa Rivas

Federal Reserve Chair Jerome Powell is just like us -- at the mercy of a market buffeted by changing tariff policies and trade wars.

The S&P 500 index finished the holiday-shortened week down 1.5%, while the Dow Jones Industrial Average closed 2.7% lower and the Nasdaq Composite notched a 2.6% loss, reflecting the market's whipsawing thoughts on trade and the Fed.

With President Donald Trump's Liberation Day tariffs on pause, investors are alert and hopeful that individual countries will strike deals to avoid the most punitive levies on foreign goods, which could slow global trade and the economy.

Yet the tariff situation with China -- which may or may not be open to negotiations -- remains quite fractious, no small worry considering it's the world's second-largest economy and that new restrictions on artificial-intelligence chips have ensnared the once-highflying tech sector, which had fueled much of the past two years' rally.

Equally concerning is the fact that escalating tensions and zigzagging policy out of Washington may be pushing individual companies toward brokering their own relationships with China, as this past week saw Jensen Huang, the CEO of Nvidia -- the most magnificent of the Magnificent Seven stocks last year -- make a surprise trip to Beijing at a trade group's invitation.

"This is a stark example of how the current U.S. trade stance is pushing countries and companies further toward China, not away from it -- financially, economically, politically and diplomatically," says DeVere Group CEO Nigel Green, who called the latest move to block exports of Nvidia's H20 chip -- a model specifically designed to meet previous U.S. restrictions -- a "masterclass in the law of unintended consequences."

Those consequences, including "damage to confidence -- in particular in U.S. asset markets and the dollar -- may prove longer-lasting," argues Capital Economics' Jonas Goltermann. Although he writes that the worst may be over "for now," slower economic growth and greater uncertainty means the hardest-hit assets may not fully recover their previous highs: "The big picture is that the range of plausible outcomes has widened significantly and, compared to just a couple of months ago, the outlook appears more challenging for 'risky' assets and, perhaps, government bond markets too."

The fact that bonds aren't acting as the safe haven they once were exacerbates the problem for investors looking for places to ride out the turbulence.

Other defensive options have held up better -- both this past week and year to date -- including the Utilities Select Sector SPDR (ticker: XLU) and Consumer Staples Select Sector SPDR $(XLP)$ exchange-traded funds. Gold has soared this year, but seems unlikely to falter as long as uncertainty reigns. Cash can't compete long-term, but high-yield savings accounts and money-market funds are attractive too, for now.

As for the so-called Fed put, it seems Powell is in no hurry to step in to calm markets, saying on Wednesday that stocks are "doing what they're supposed to do," with more volatility likely.

That drew further ire from the White House, given Powell highlighted that the "boost to inflation from tariffs could make it harder for the central bank to counter weaker growth," as UBS strategists put it, rekindling "concerns that the Fed could be hampered in its ability to support the economy." Powell also said that policymakers would have to "wait for greater clarity" before making any changes.

The only thing that seems certain is that everyone is on their own.

Write to Teresa Rivas at teresa.rivas@barrons.com

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April 18, 2025 02:00 ET (06:00 GMT)

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