With the S&P 500 index nearly flat in the past month, the Stoxx Europe 600 down just 2.2% and up 3.3% this year, and both the Vix and VStoxx volatility indices having relaxed back to pre-April 2 levels, traces of a tariff-induced stockmarket crisis are growing scarcer each day.
Investors’ deep sigh of relief at the White House’s announcement on April 9 of a 90 day stay on tariffs above 10% for all countries bar China led to equity prices whipsawing.
But stocks' elastic rebound is justified neither by the extent of the US government’s pivot, nor by the economic outlook.
First, the noises from the Trump administration since April 9, while an improvement on the angry yell of 'liberation day' on April 2, cannot be interpreted as a full retraction.
Tariffs on China remain at levels so high they effectively embargo trade in many goods. No deal is in sight with China, and talks with other countries are still at an early stage.
But even an agreement with China might not be enough to prevent a US recession.
The fact a Covid-style meltdown and financial crisis was avoided does not preclude a more typical downturn from developing.
The experience of the pandemic may have led investors to forget that recessions are more often slow burners, in which deterioration in consumption, investment and employment feed on each other.
Economic uncertainty has sapped consumer confidence and the impact is already visible: a 0.3% contraction in US GDP in the first quarter, the first since 2022.
The trend could well worsen: the Conference Board said on Tuesday US consumers' expectations for the future had reached a 13 year low.
Share valuations before April 2 priced in neither a full trade war, nor a US recession.
Investors now appear convinced we will avoid a full trade war.
But they should keep in mind that a US recession may be enough to bring stocks back down regardless.