US stocks off to major bounce back from their tariff doom spiral

CNN

08-04-2025

After markets plunged over the course of the past three trading sessions, Wall Street investors were looking for any excuse to catch their breath ahead of another planned tariff escalation at midnight.
They seem to have found one — at least for now.
US stocks opened higher Tuesday, setting the stage for a rebound. The Dow rose 1,360 points, or 3.6%. The broader S&P 500 gained 3.4%. The tech-heavy Nasdaq Composite rose 3.76%.
Over the course of the past few days, stock prices got absolutely hammered as Wall Street grew fearful that President Donald Trump's tariff policy would plunge the US and global economies into a recession. But after three days of market carnage, investors appeared to be seeking some buying opportunities.
The price-to-earnings ratio of S&P 500 companies closed below 17 Monday — historically cheap, giving investors a chance to scoop up stocks they believe might be oversold.
'This is a very normal action and very technical in nature after a shock period,' said Truist's Keith Lerner. 'The market is extremely oversold, and markets don't move in a linear fashion.'
Lerner noted that historic market rebounds tend to be clustered in with massive declines, as investors with FOMO worry they could miss out on a rally.
'In a period of uncertainty, each bit of new information is overextrapolated, which leads to wider-than-normal-swings,' Lerner added.
That explains why a bit of fake news Monday that Trump was considering a tariffs pause — immediately batted down by the White House — sent stocks temporarily surging. That gave markets a taste for what could happen if some nations begin to make progress in negotiating lower tariffs.
'Yesterday market players saw how the hint of 'good news' — in that case it was chatter about a pause in the Liberation Day tariffs — could rally markets by whole percentage points very quickly,' Michael Block of Third Seven Capital said in a note to investors. 'Even though that proved to be all smoke, traders are now poised for the fire – that is, real news.'
However, there's no guarantee stocks will remain buoyant.
After imposing across-the-board 10% tariffs on virtually all products coming into the United States Saturday, the Trump administration is set to impose significantly steeper levies still on dozens of countries. Those tariffs, which Trump has called 'reciprocal,' although they are no such thing, amount to as much as 50% for a handful of countries — and some tariffs on China could rise to about 70%.
Trump also threatened to slap an extra 50% tariff on China if the country doesn't back down from its retaliatory tariffs it announced Friday. China's Commerce Ministry on Tuesday said the country would 'fight to the end' of the trade war and would continue to stand up to Trump.
The escalating trade war between the two largest economies is turning into a high-stakes game of chicken. China may be staring down a midnight deadline to avoid tariffs surging over 100%, but it so far it is standing up to Trump, with no signs of blinking.
China has squashed deals that Trump wants – including a US company taking control of ports on both sides of the Panama Canal and a deal to sell TikTok to a US-based company. Both countries' economies would be hurt in a trade war – and given the massive trade imbalance with the United States, China could very well be hurt worse.
So investors hopeful for a deal may not get one. And if they don't, a damaging trade war could bring down both economies – and markets along with them.
Any escalation of the trade war would probably lead to a US and global recession this year, multiple Wall Street banks have said over the course of the past week, including Goldman Sachs and JPMorgan Chase. That could continue to sap demand for stocks.
Although the current bounce back may be short-lived, some in the Trump administration were already declaring victory.
'It's finding the bottom now. It's finding the bottom now,' Trump's top trade adviser Peter Navarro said about the market Monday evening on Fox News. 'It's going to shift over and it's going to be companies in the S&P 500 who are the first to produce here. Those are the ones going to lead to recovery. And it's going to happen. Dow 50,000. I guarantee that and I guarantee no recession.'
Navarro's optimism wasn't matched by JPMorgan Chase CEO Jamie Dimon, who warned in his annual letter to shareholders Monday that Trump's tariffs would raise prices, slow the global economy and weaken America's standing in the world by tearing up its alliances. Even some of Trump's allies, including Elon Musk and Bill Ackman, have recently warned that tariffs are bad policy that rely on extremely flawed logic.
Nevertheless, stock markets around the world rose Tuesday.
Most Asian stock indexes closed higher. Japan's benchmark Nikkei 225, which tracks more than 200 of the country's biggest listed companies, closed 6% up. In South Korea, the Kospi closed 0.3% higher. Australia's benchmark ASX 200 closed 2.3% stronger. Hong Kong's benchmark Hang Seng Index, composed of Hong Kong and mainland China's largest listed companies, finished about 1.5% higher Tuesday. A day earlier, it had closed more than 13% lower on the day, in the biggest daily decline for the index since the 1997 Asian financial crisis.
In Europe, the benchmark STOXX 600 index was up 2.7%. France's CAC index rose 2.5% and Germany's DAX 2.4%, while London's FTSE 100 index was up 2.6%.
CNN's Anna Cooban and Juliana Liu contributed to this report.