On April 14, boosted by Trump's previous announcement of a 90-day extension of "reciprocal tariffs" and the possibility of providing exemptions to the automotive industry, the three major U.S. stock indexes closed higher, but after-hours stock index futures fell again. The latest tariff policy of the Trump administration continues to hit global investors' long-term holdings of US dollar assets, causing the US market to continue to suffer "three kills of stocks, bonds and foreign exchanges" since last week. At present, the Trump administration has repeatedly stanced on tariff policies, and traders are cautious and wait-and-see.

Analysts warn that the uncertainty of Trump's tariff policy continues, coupled with the surge in zero-day maturity options (0DTE) linked to the S&P 500 index in April, may further intensify the volatility of US stocks. In addition, the financial reports released this week, retail sales data for March and the chaos in the US bond market will also affect the subsequent trend of US stocks.

Source: Xinhua News Agency

Source: Xinhua News Agency

"Peer-to-peer tariff" uncertainty superimposed on 0DTE

After two consecutive trading days of rising, the three major U.S. stock index futures turned down after Monday's session. S&P 500 futures fell 0.3% to 5422.75 points, Nasdaq 100 futures fell 0.4% to 18854.25 points, and Dow futures fell 0.3% to 40639.0 points. Analysts believe that any news about tariffs will remain the focus of the market in the coming week.

Nanette Abuhoff Jacobson, a global investment and multi-asset strategist at Wellington Investment Management, told China Business News that investor surveys and stock capital flows showed that market expectations for relatively strong U.S. markets have loosened, with historic large-scale funds flowing out of the United States and turning to Europe, and the latter's profits have undergone significant corrections. In addition, U.S. tariff policies and implementation risks, such as debt for defense spending, are not fully reflected in the current valuation. In the U.S. stock market, considering that economic policy uncertainty will continue, this will put pressure on the risk premium of U.S. stocks. "So, even after experiencing previous sell-offs and current rebounds, we will not raise the U.S. stock market to overweight," he said.

"Overall, we're still in place. Admittedly, there's still a lot of uncertainty in tariff policies. Uncertainty means investors will be more hesitant, and that's the risk for the next 90 days."

Morgan Stanley's team of U.S. stock strategists warned in their latest report on the 14th that the Trump administration's capricious tariff policy may still exacerbate uncertainty among businesses and consumers. "U.S. stocks may maintain high volatility in a certain trading range until we gain greater certainty about the depth of the slowdown in growth and the timing of recovery."

Volatility in the U.S. stock market has soared recently. According to data from the Chicago Options Exchange global market, the S&P 500's intraday volatility nearly doubled to 44% last week, surpassing its 2020 high and approaching the worst of the 2008 financial crisis.

The extreme volatility that breeds this uncertainty stimulates demand for 0DTE as investors want to hedge risks and take advantage of volatility. The characteristics of 0DTE are its extremely short trading cycle and high leverage effect, which enables investors to obtain huge returns in a short period of time, but also amplifies investor risks and volatility. "This is like adding an amplifier to market volatility, like adding firewood to an already boiling oil pan. This short-term speculation tool was rarely seen a decade ago, but now it has become a catalyst for aggravation. In addition, options have been an institutional tool for the past few decades, and today the maturity of retail investors has enabled more and more people to use options for hedging or simple speculation."

According to JPMorgan Chase, the 0DTE trading volume linked to the S&P 500 index surged to 8.5 million lots in April, an increase of 23% from the beginning of the year, accounting for about 7% of the total trading volume of the U.S. option market.

"We found that 0DTE and one-day maturity options play an important role in driving intraday volatility, and the increase in intraday volatility may not necessarily be reflected on the closing price," said Max Grinacoff, head of UBS's U.S. equity derivatives research.

More first-quarter financial reports will be released

In addition, more companies will announce their first-quarter financial reports this week. Goldman Sachs' financial report released on the 14th showed that as stock traders took advantage of the turbulent market to make profits, profits rose 15% in the first quarter and their stock prices also rose about 2%. Bank of America, Citigroup, Johnson & Johnson, TSMC and Netflix will also release their first-quarter earnings later this week.

Last week, the most significant information conveyed by institutions and enterprises that have released their financial reports was uncertainty. Delta Airlines canceled its full-year performance guidance, and company CEO Ed Bastian said the outlook was "bleak". JPMorgan CEO Jamie Dimon said the economy is facing "conspicuous turmoil." BlackRock CEO Larry Fink revealed that “Uncertainty and anxiety about the market and the economic future are dominating the conversations between customers and them.”

Market analysts expect uncertainty and pessimistic expectations will remain the continuing themes of this week's financial report. "There is the darkest environment we face after the pandemic. In this environment, major companies may lack performance guidance in their financial reports because companies cannot tell us what will happen next," said Kevin Gordon, senior investment strategist at Schwab Financial.

According to a monthly survey released by Chief Executive on the 14th, more and more U.S. executives expect the U.S. economy to enter a recession in the near future. The survey began in 2022, and 62% of the more than 300 CEOs surveyed in April said they predict a recession or slowdown in the next six months. This rate is higher than 48% in March.

Businesses and markets have reached their peak over the past two weeks’ concerns about the upcoming recession, as Trump’s capricious tariffs exacerbate volatility in financial markets and sparked panic among some consumers. About three-quarters of the CEOs surveyed said tariffs would harm their business in 2025. About two-thirds said they did not support Trump's proposed tariffs. More than four-fifths of CEOs surveyed expect costs to soar this year, with about half even predicting their spending growth to double-digit growth. On the contrary, only 37% of the CEOs surveyed expect their company's profits to increase, with the same proportion as 76% in January.

US Treasury Market Variables

The sharp selling of US bonds has also added another headwind to the bull market prospects of US stocks. The 10-year U.S. Treasury yield soared for five consecutive days last week, setting its largest single-week gain since November 2021. Over the past two years, rising 10-year U.S. Treasury yields have often become a key driver of the decline in U.S. stocks, especially when the yield rises above 4.5%. Currently, the 10-year U.S. Treasury yields and volatility soared sharply, becoming the main concern for investors.

Jack Bousen told China Business News that the market should continue to regard 10-year U.S. Treasury bonds as a weather vane for growth and inflation expectations and consider their impact on other asset classes. If investors' focus later shifts from growth to inflation, higher interest rates will put U.S. stocks facing greater downside risks due to their high valuations.

Michael Kantrowitz, chief investment strategist at broker Piper Sandler, also bluntly stated that turmoil in the U.S. bond market is a "new negative" factor in the market narrative, "this creates a new variable to some extent that may increase the volatility of dollar assets during the day without any headlines."

On the 1st, the 10-year U.S. Treasury yield finally weakened slightly to around 4.38%. However, the US dollar index, which fell simultaneously with US bonds last week, continued to close 0.2% on the 14th. Analysts interviewed by First Financial News recently generally stated that the simultaneous decline of US bonds and the US dollar means that some systematic and structural problems in the United States have finally been highlighted under the ignition of tariff policies, making the attractiveness of US dollar assets less. Yellen, former U.S. Treasury Secretary and former Federal Reserve Chairman, also admitted that the uncertainty arises due to tariff policies has triggered a "very worrying" trend for dollar-based assets. The recent sell-off of U.S. Treasury bonds shows that investors' confidence in U.S. policymaking has shown a "worrying decline" and investors have begun to shy away from dollar assets.

"Any continued decline in the US dollar, US bonds and US stocks indicates that US assets are experiencing capital outflows. This reflects the disappearance of US growth and investment exceptionalism, and also reflects that the status of US dollar reserve currency is shaken and the attractiveness of US dollar assets is reduced in the face of unstable US policy decisions."

Investors believe that the chaos in the U.S. bond market will not end soon. David Rogal, chief portfolio manager of BlackRock Total Return Fund (MAHQX), said: "We will be in a highly volatile environment, so we prefer to reduce the share of US stocks and US bonds in our portfolio and increase the share of cash to gain some flexibility."

Retail sales data in March

The market is also worried that Trump's tariff policy has put the United States in a recession risk rising. Therefore, any economic data will also stimulate U.S. stock investors. On the 16th local time, US retail sales data in March tracking consumer spending will be released soon. The market expects retail sales to grow by 1.4% in March, up from the 0.2% increase last month. Excluding the volatile automotive and gas industries, retail sales are expected to grow by 0.4%.

"As U.S. consumers shop in advance before tariffs have a significant impact, large retail spending in March and April may surge. After that, however, we may see weak consumer spending in the second half of the year," Wells Fargo Economic Team, led by Jay Bryson, wrote in a note to clients.

In addition, the market is also concerned about inflation prospects. The March Consumer Expectation Survey (SCE) report released by the New York Fed Microeconomic Data Center on the 14th local time showed that respondents' median U.S. inflation expectations for the next year rose by 0.5 percentage points to 3.6%, the largest single-month increase in two years. Earlier, New York Fed Chairman John Williams warned that the tariff measures introduced by Trump could soar U.S. inflation this year to between 3.5% and 4%, while pushing up unemployment and severely hitting economic growth. Previous reports from the University of Michigan also showed that respondents expect inflation expectations to be 6.7% in the coming year, the highest level since 1981.