The U.S. stock market has staged a notable comeback since April 9, the day President Trump suspended the recently enacted reciprocal tariffs. This resurgence has propelled the S&P 500 up by a robust 18%, while the Nasdaq has soared by an even more impressive 25%. This rally has been largely fueled by renewed optimism surrounding potential trade talks, raising hopes of staving off further economic deterioration.
The strength of this recovery has been such that the S&P 500 has effectively erased all losses attributed to the tariff concerns. Having rebounded from a near-20% decline, the benchmark index now sits slightly in positive territory for the year, boasting a 0.19% gain year-to-date. However, a sense of unease persists among some market participants, with billionaire hedge fund titan Steven Cohen being a prominent voice cautioning that both equities and the broader economy remain susceptible to significant headwinds.
Federal Reserve Navigates Delicate Inflation-Growth Tightrope
The Federal Reserve finds itself in a precarious position, tasked with the delicate balancing act of curbing inflation without triggering an economic contraction.
Following a 2022 misjudgment of inflation as merely “transitory,” the central bank embarked on its most aggressive interest rate hiking campaign since the volatile 1980s. While these measures have succeeded in bringing inflation down to below 3%, they have also contributed to a rise in the unemployment rate, which now stands at 4.2%, up from a low of 3.4% in 2024.
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Adding to the economic anxiety, layoff announcements have accelerated, with over 602,000 job cuts declared this year alone—marking the highest level since the height of the pandemic. Consequently, the Fed appears increasingly hesitant to initiate interest rate cuts, fearing that the lingering effects of tariffs could reignite inflationary pressures.
Trump’s Tariffs: An Escalating Drag on Economic Activity
The international trade landscape has undergone a dramatic transformation in 2025:
- February: The implementation of 25% tariffs on goods from Canada and Mexico, alongside a 10% levy on Chinese imports (which was subsequently raised to 20% in March).
- April: The introduction of a broad-based 10% import tax, coupled with reciprocal global tariffs (the majority of which were temporarily suspended on April 9).
- China Tariffs: Tariffs on Chinese goods briefly spiked to an exorbitant 145% before being scaled back to 30% as diplomatic negotiations resumed.
While the recent partial rollback of tariffs has provided a degree of relief, these levies continue to exert significant pressure on businesses and consumers alike.
Cohen Warns: Recessionary Risks Loom Large
Speaking at the prestigious Sohn Investment Conference this week, Steven Cohen—a seasoned market veteran and the founder of Point72 Asset Management – offered a sobering outlook on the current economic climate:
- Market Could Retest Lows: Cohen suggested that the S&P 500 could potentially revisit its April nadir.
- Recession Odds Elevated: “Growth is slowing significantly,” Cohen stated, adding that “a 45% chance of recession isn’t a trivial matter.”
- Fed Likely to Maintain Hawkish Stance: He anticipates that policymakers will remain cautious about cutting rates due to the persistent threat of tariff-induced inflation.
- Slower Growth Trajectory: Cohen projects that GDP growth could decelerate to 1.5% or lower in 2025, a notable decline from the 3% expansion recorded in the previous year.
Despite President Trump’s partial reversal on tariffs, which has averted a potentially more severe economic downturn, Cohen anticipates a period of range-bound market activity characterized by persistent underlying risks.
Bond Market Signals Potential Trouble Ahead
The yield on the benchmark 10-year Treasury note surged past the 4.5% mark this week, reaching its highest level since mid-February. This increase in bond yields typically exerts downward pressure on stock prices, as higher yields make bonds a more attractive and less risky investment alternative.
The Final Takeaway
While the recent rebound in the stock market offers a glimmer of hope, Steven Cohen’s cautionary remarks serve as a critical reminder that the U.S. economy is not yet out of the woods. Investors should brace themselves for continued market volatility and the potential for a significant slowdown in economic growth.