American equity markets staged their biggest one-day points rally on record after President Trump executed a climbdown on trade tariffs and announced a 90-day pause on many new levies on trading partners with the notable exception of China.
At the opening bell on Wall Street, indices looked on track to record a fifth consecutive session of losses as the sell-off spread to the government bond market with US Treasury prices sinking at their fastest pace in years. The downward spiral pushed yields higher, as hedge funds rushed to unwind a highly leveraged $1 trillion trade that had soured owing to the market turmoil of recent days.
However, by the end of normal trading on Wednesday, the broadly based S&P 500 was up 474.13 points, or 9.5 per cent at 5,456.90, its best percentage rise since March 2020, while the technology-heavy Nasdaq Composite had risen 1,857.06 points, or 12.2 per cent, to 17,124.97, the biggest percentage gain since January 2002. The Dow Jones industrial average finished 2,962.86 points, or 7.9 per cent, up at 40,608.45.
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The so-called Magnificent Seven technology stocks, which have lost about $5 trillion in market value since their peak in late 2024, added more than $1 trillion in value on Wednesday. Shares of the companies, which include Nvidia, Apple, Tesla and Microsoft, were up between 8 and 13 per cent.
“Huge moves in the marketplace right now, particularly on equities who are taking this [tariff] news very well,” Amarjit Sahota, executive director at Klarity FX, a San Francisco-based foreign exchange dealer, said.
“But the questions are really going to come: why did we see this reprieve and is it even a good idea? Personally, I don’t think it’s a good idea: 90-day pause just creates more uncertainty for 90 days.”
Before Trump’s climbdown it was yet another day of extreme turbulence in both equity and bond markets as:
• The Bank of England warned that hedge funds are facing “significant” margin calls from their prime brokers;
• Pressure mounted on the US Federal Reserve to take emergency measures;
• Oil sank below $60 a barrel; and
• America’s biggest airline, Delta Air Lines, pulled its profit forecasts for the year
Some analysts also suggested the brutal bond market sell-off could be due to a new “sell America” sentiment among international investors, with the US seen as vulnerable to withdrawals from foreign governments including China, which own trillions of dollars in US treasuries.
The yield on the 30-year US government bond leapt by as much as 24 basis points to briefly top 5 per cent, while the yield on the benchmark ten-year US treasury climbed by 21 basis points to over 4.5 per cent. Movements in US debt markets this week have been among the largest in 20 years.
The surprise price movements were likened to the “dash for cash” at the start of the pandemic in March 2020, which was only ended after the Fed slashed rates and intervened with a huge programme of bond buying, including of junk bonds.
Yields, which move inversely to prices, marched higher in Europe also. The rate on the 30-year UK government bond surged by as much as 30 basis points to over 5.64 per cent, its highest point since 1998.
European stocks fell sharply again on Wednesday as Trump’s reciprocal tariffs kicked into effect. China also announced a total 84 per cent tariff on US imports after Trump imposed a 104 per cent levy on some Chinese goods this week.
The FTSE 100 lost 2.92 per cent to close at 7,679.48, its lowest since March 11, 2024 leaving the index in correction territory with a fall of 13.4 per cent from its record close of 8,871.31 on March 3. The more domestically focused FTSE 250 was 2.50 per cent lower at 17,890.64. On the Continent, the pan-European Stoxx 600 index tumbled by 3.50 per cent while Germany’s Dax and France’s Cac 40 both fell by 3 per cent.
The pound strengthened by 0.15 per cent against the dollar to $1.27 while the euro climbed by 1.01 per cent to $1.10. The dollar index, which measures the greenback against six comparable currencies, slipped by 0.74 per cent.
The sell-off in US government bonds came despite rapid falls in American stock prices over the past week, which analysts at Germany’s Deutsche Bank said added “to the evidence that [US treasuries are] losing their traditional haven status”.
Traders also priced in a growing chance of an emergency interest rate cut by the US Federal Reserve outside of its usual meeting schedule to quell the market panic. US rates presently stand at 4.25 per cent to 4.5 per cent.
The tariff-induced sell-off prompted hedge funds to scale back a $1 trillion trade — exacerbating the rise in government bond yields — in which they take advantage of price differentials in the spot and future markets for US treasuries, known as the “basis trade”. This price difference is often minimal and the trade tends to involve high borrowing to maximise returns.
Analysts at the asset manager Jefferies said: “It looks like we [are starting] to have liquidity problems. There appears to be a liquidation ongoing in US treasury securities which is causing a liquidity issue for the banks and the financial system.”
Jefferies estimated that the basis trade is worth roughly $1 trillion — twice as big as during the sudden “dash for cash” panic caused by the onset of the Covid-19 pandemic in March 2020.
The “basis trade” intensified the market turmoil of the early days of the pandemic. A similar dynamic struck a small section of the UK pensions market in the aftermath of Liz Truss’s mini budget in 2022, prompting the Bank of England to launch a time-limited bond-buying scheme.
Before Trump’s U-turn oil prices sank to their lowest level in four years as traders anticipated much lower demand with Brent crude, the global oil benchmark, falling by 5.60 per cent to $59.12 a barrel, its cheapest price since 2021, before staging a remarkable recovery with a daily gain of 4.2 per cent to $65.48.
Spot gold prices climbed by 3 per cent to $3,056.50 an ounce, the biggest percentage gain since October 2023.
