MW As 'sell America' trade rattles Washington and Wall Street, here's what could bring U.S. markets back from the brink

By Joseph Adinolfi

Sentiment may already be washed out, and the tide of uncertainty is already beginning to turn

President Trump's decision to pause some of his tariffs helped spur a rebound in stocks last week. But it didn't stop the pressure from spreading to other corners of the financial markets.

A recent bout of aggressive weakness in the dollar and Treasurys has spurred concerns that the American "brand" as an attractive destination for foreign investment capital has been tarnished, perhaps irreparably so.

"[T]he more troubling narrative of late is the notion of what we call a 'sell America Inc.' risk," a team of interest-rate strategists at ING said in a report shared with MarketWatch.

Even Trump himself acknowledged that the bond market was "very tricky" during a press conference after he announced his plan for a 90-day pause on new tariffs on many countries, suggesting that it might have inspired his decision to partially tone down his trade fight. But to many investors, seeing the dollar and bond prices fall in tandem has come as a shock.

Speculation that investors in Japan and China might be pausing purchases of U.S. bonds, or even unloading Treasurys outright, has added to the sense of dread, even though evidence of this has been lacking.

Buyers still showed up to auctions of 10-year and 30-year Treasurys held last week. In their report, the team at ING said it was unclear whether pressure on bonds and the dollar was coming from American investors or foreign investors.

While markets remain in the grip of uncertainty spurred by Trump's decision to launch a trade fight with China - one of the biggest U.S. trading partners - some investors are beginning to see a buying opportunity amid the chaos.

Jason Browne, president of Alexis Investment Partners, told MarketWatch that large dips in stocks and bonds have, in the past, been great opportunities for investors with a more long-term focus. Browne said he recently added long-duration Treasurys to his portfolio, and thinks stocks like Nvidia Corp. $(NVDA)$ and other members of the "Magnificent Seven" were looking attractive at these valuations.

While Trump's tariff agenda has been disruptive, it hasn't doomed U.S. capital markets, he said.

"At some point, everything will find its footing," Browne told MarketWatch. "It's only been a few days - give it time."

'Peak uncertainty'

Central to the question of how quickly U.S. stocks might recover is whether or not investors have already passed the point of "peak uncertainty."

David Lefkowitz, head of U.S. equities at UBS Group's global wealth-management business, said on Friday that Trump's willingness to pause some of his tariffs was likely the first step toward restoring the confidence of investors and corporate executives alike.

By demonstrating that he is attuned to capital markets and the economy, Trump may have helped dial back growing expectations for a recession. That could mean that "peak uncertainty" has already passed.

There is some data to back this idea up. Julian Emanuel, an equity strategist at Evercore ISI, pointed out in a report shared with MarketWatch on Friday that Bloomberg's index of trade-policy uncertainty has started to decline over the past few days.

"It may be a blip, but [April 10] marked the first downtick in trade-policy uncertainty in weeks," he said.

Emanuel also highlighted that popular sentiment gauges like the American Association of Individual Investors' weekly survey have fallen to levels consistent with previous "generational buying" opportunities in March 2009 and October 1990.

What would it take for stocks to find a floor?

Even if stocks do find a floor here, few strategists expect a swift return to where the market was in February, when the S&P 500 index last hit a record high.

Simply too many risks remain that could emerge over the next few months, said Michael Kramer, the founder of Mott Capital. Corporate earnings season has just begun, and a lack of clarity on trade policy could inspire many of America's biggest companies to pull their profit outlooks, as Delta Air Lines $(DAL)$ did recently.

A team of strategists at Bank of America said in a report shared with MarketWatch earlier this week that when companies ditch their guidance, their shares tend to underperform.

Plus, investors will be closely monitoring economic data due out over the next couple of months for any signs that Trump's tariffs are causing a slowdown in growth, a spike in unemployment or a boost to inflationary pressures.

Recessions tend to produce grinding bear markets that result in the S&P 500 falling by at least 20%. As of Friday's close, the index was down less than 11% from its Feb. 19 closing high, FactSet data showed.

Kramer, for his part, thinks the market will keep pushing and prodding the administration until Trump finally capitulates. Until that happens, the portfolio manager expects markets to remain volatile.

"I don't really know if announcing a couple of trade deals is going to help," Kramer said. "I think the market is going to keep pushing this until Trump basically reverses the whole thing."

Even a Trump reversal on trade might not be enough to soothe angry investors, others suggested. At this point, it might take more interest-rate cuts by the Federal Reserve to revive investor confidence.

"I do not believe simply hitting a theoretical 'undo' button would bring us back to the highly optimistic and lower volatility environment we saw coming into 2025," said Ryan Dykmans, chief investment officer at Dunham & Associates Investment Counsel.

"It may take the combination of the Fed easing, along with tax relief, as well as continued deregulation," he added.

The Dow Jones Industrial Average DJIA, Nasdaq Composite COMP and S&P 500 SPX all saw strong rebounds this past week. As of Friday's close, the S&P 500 had gained 289.28 points, or 5.7%, on the week to finish at 5,363.36, its best weekly percentage-point gain since November 2023.

The 10-year Treasury yield BX:TMUBMUSD10Y rose 50 basis points to 4.492% this week. As of 3 p.m. Eastern time on Friday, it was the yield's biggest weekly gain since Nov. 16, 2001, Dow Jones data showed. The yield on the 30-year Treasury bond BX:TMUBMUSD30Y also rose sharply, tallying its biggest weekly gain since April 1987.

The euro $(EURUSD.FOREX)$ strengthened by 3.7% to $1.136, its best week against the dollar DXY since March.

Read: JPMorgan CEO Jamie Dimon warns tariffs and trade war are causing 'considerable turbulence' in the economy

-Joseph Adinolfi

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April 13, 2025 12:00 ET (16:00 GMT)

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