In a surprising development in the tariff saga, Trump announced a temporary drop in tariff rates for most countries to 10% for 90 days, triggering a historic surge across U.S. markets.
The S&P 500 surged over 9%, marking its third-largest single-day gain since World War II. The Dow posted its strongest percentage gain since March 2020, and the Nasdaq Composite experienced its best single-day performance since January 2001 — its second-best on record, as quoted on CNBC.
Trading volume also hit unprecedented levels, with approximately 30 billion shares changing hands — the highest volume in at least 18 years.
Inside the New Tariff Announcement
The rally came after Trump announced that most countries would face a reduced tariff rate of 10% for the next 90 days. Notably, Canada and Mexico were exempted from this additional duty. However, goods from China will still be subject to a 125% tariff rate. Trump expressed optimism about reaching a favorable deal with China.
Trump's Decision Influenced by Markets?
According to Paul Ashworth, chief North America economist at Capital Economics, Trump backed off the tariff stance due to growing pressure from financial markets, especially the bond market.
Ashworth predicts that Trump may continue to extend the 90-day tariff pause, potentially leading to a de facto 10% universal tariff — a policy he had advocated during his campaign, as quoted on CNBC.
Despite ongoing talks, a complete rollback to pre-Inauguration Day tariff levels seems unlikely. Ashworth estimates that tariffs on Chinese goods may ultimately stabilize around 60%.
Even with lower oil prices contributing to deflationary pressure, Capital Economics expects U.S. inflation to peak around 4% — double the Federal Reserve’s 2% target. The firm forecasts U.S. GDP growth to slow to between 1.0% and 1.5% annualized over the next four quarters.
High Beta & Momentum ETFs to Gain in Near Term?
As such, most of the related exchange-traded funds (ETFs) will likely see a nice boost from short-term tariff relief. However, high-beta and high-momentum ETFs, in particular, are expected to outperform in the near term, making them compelling options for short-term investors.
High-beta ETFs experience larger gains than the broader market counterparts in a bullish market, while momentum investing looks to capture profits from buying hot stocks.
These include Invesco S&P 500 High Beta ETF SPHB, iShares MSCI USA Momentum Factor ETF MTUM, Invesco Dorsey Wright Momentum ETF PDP, Invesco S&P MidCap Momentum ETF XMMO and Invesco S&P SmallCap Value with Momentum ETF XSVM.
It is better to consider riskier investments for the short term, as tariff tensions remain unresolved and uncertainty still looms. The outlook beyond the 90-day period is still unclear. If this was not enough, Jeffrey Roach, chief economist at LPL Financial, noted that volatility may persist due to economic reasons: 'Hard data from the early part of the year suggests the economy is slowing, irrespective of trade policy,' as quoted on CNBC.
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iShares MSCI USA Momentum Factor ETF (MTUM): ETF Research Reports Invesco S&P 500 High Beta ETF (SPHB): ETF Research Reports Invesco Dorsey Wright Momentum ETF (PDP): ETF Research Reports Invesco S&P MidCap Momentum ETF (XMMO): ETF Research Reports Invesco S&P SmallCap Value with Momentum ETF (XSVM): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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