Khan Capital | April 2025
Key Takeaways
- Trump’s 90-day tariff pause triggered the S&P 500’s best day since 2008 (+9.52%), the Nasdaq’s best day since 2001 (+12.16%), and a Dow surge of 2,963 points, reversing a 12% loss that had accumulated in the previous seven trading sessions.
- The bond market forced the reversal: a disorderly Treasury sell-off that saw the 10-year yield swing 51 basis points in three days threatened the safe-haven status of US government debt and the administration’s ability to finance growing fiscal deficits.
- The pause was narrower than markets celebrated: 10% baseline tariffs remained universal, China tariffs escalated to 125%+, and steel, aluminium, and auto duties were unaffected, leaving the average US tariff rate at approximately 27%, the highest in over a century.
- The S&P 500 recovered to pre-Liberation Day levels within a month and set a new all-time high by late June, but the recovery was driven by relief pricing rather than improved fundamentals, with most CEOs withdrawing or lowering forward guidance.
- The episode established that tariff policy functions as a negotiating tool with real but negotiable consequences, and that the bond market remains the ultimate constraint on policy decisions that threaten US fiscal credibility.
At 1:18 p.m. ET on 9 April 2025, President Trump posted on Truth Social that he had “authorized a 90 day PAUSE” on the reciprocal tariffs that had been announced just seven days earlier. Within minutes, the S&P 500 surged 9.52%, its best single-day performance since October 2008 and the third-largest one-day gain since World War II. The Dow Jones rocketed 2,963 points, its biggest advance since March 2020. The Nasdaq soared 12.16%, its best day since January 2001. Ninety-eight percent of the stocks in the S&P 500 rallied. The VIX, which had breached 50 that morning (a level previously reached only during the 2008 financial crisis and the COVID pandemic), collapsed 36% in the afternoon.
The whipsaw was extraordinary even by the standards of 2025. In the seven days between Liberation Day and the pause, the S&P 500 had lost over 12%, with the index touching 4,983 on 8 April, down 15.28% year-to-date and on the precipice of bear market territory just seven weeks after reaching an all-time high. Goldman Sachs had published a note moving to a “recession baseline” just hours before the pause was announced. The most violent policy-driven sell-off since the pandemic was reversed by a single social media post.
What Triggered the Reversal
The official explanation was that over 75 countries had contacted US officials to negotiate in the week following the Liberation Day announcement, creating an opportunity for bilateral discussions. The actual trigger was more prosaic: the bond market had broken.
In the days preceding the pause, the US Treasury market experienced severe dysfunction. The 10-year yield swung 51 basis points in a single three-day period, from a low of 3.87% to approximately 4.38%. This was not a normal bond market move; it was a disorderly sell-off that signalled eroding confidence in US government debt. Trump himself acknowledged the bond market’s role, telling reporters: “I was watching the bond market. The bond market is very tricky. I was watching it.”
Deutsche Bank analysts warned that the Treasury sell-off might signal weakening demand for US-backed assets, a development that JPMorgan CEO Jamie Dimon echoed in his shareholder letter. The message from the bond market was unambiguous: the tariff regime was threatening not just equity valuations but the foundational safe-haven status of US government securities. For an administration that needed to issue trillions in new debt, rising borrowing costs represented an immediate fiscal constraint that no political calculation could ignore.
What the Pause Actually Changed
The 90-day pause was narrower than the market’s euphoric reaction implied. The reciprocal tariffs above 10% were suspended for non-retaliating countries, but the baseline 10% universal tariff remained in effect. Tariffs on China were not paused; they were escalated to 125% (later rising to 145% as retaliatory spirals continued). Steel and aluminium tariffs under Section 232 remained. The 25% auto tariff imposed on 3 April remained. Sector-specific duties remained.
Politico estimated that despite the pause, the remaining tariffs brought the average applied US tariff rate to approximately 27%, the highest level in over a century. The pause reduced the tariff shock from catastrophic to merely severe. But for a market that had been pricing the catastrophic scenario, “merely severe” was enough to trigger one of the largest relief rallies in market history.
The Aftermath: V-Shaped Recovery, Unresolved Uncertainty
The recovery from the April low was swift and powerful. The S&P 500 posted its longest winning streak in 20 years in the weeks following the pause. By early May, the index had returned to its pre-Liberation Day level. By late June, it had set a new all-time high at 6,932. The rally from the April low through year-end would ultimately measure nearly 39% on a total return basis, rivalling the post-COVID recovery of 2020.
Yet the speed of the recovery masked unresolved contradictions. Corporate earnings for Q1 2025 were strong (three out of four S&P 500 companies beat expectations, with aggregate growth tracking approximately 13%), but management guidance was uniformly cautious. CEOs were either lowering or withdrawing their full-year forecasts. United Airlines offered two separate forecasts: one assuming recession, one assuming no recession. Delta withdrew guidance entirely, noting that “growth has largely stalled” due to trade war uncertainty.
The pace of actual trade deal negotiations was glacial. By the end of June, the US had completed only one bilateral agreement (with the UK) and a temporary 90-day deal with China that lowered tariffs on Chinese goods to 30% while China restored rare-earth exports. The 90-day pause deadline was extended and modified, with final tariff rates not taking effect until August. The phrase “Trump Always Chickens Out” entered market vernacular as investors increasingly priced the assumption that the most extreme tariff proposals would be modified or reversed before causing irreversible economic damage.
What the Market Is Misunderstanding
The pause proved the tariffs were a negotiating tool, but the tool has costs. The market’s relief rally was predicated on the assumption that the administration’s willingness to pause implied that the tariffs were always intended as leverage rather than permanent policy. This is probably correct as a directional assessment. But the process of threatening, implementing, escalating, and pausing tariffs creates real economic damage through uncertainty: delayed capital expenditure, disrupted supply chains, cautious hiring, and depressed consumer sentiment. The University of Michigan Consumer Sentiment Index fell to its lowest annual average in recorded history in 2025, a measure of the psychological toll that tariff uncertainty imposed even after the most extreme scenarios were averted.
The bond market is the real constraint on policy. The Treasury sell-off that preceded the pause demonstrated that bond vigilantes retain the power to discipline fiscal and trade policy. The US government’s need to issue trillions in new debt creates a structural vulnerability: any policy that threatens confidence in US Treasuries faces a market constraint that even a populist president cannot override. Investors should watch the bond market as the leading indicator of policy sustainability.
Policy unpredictability is itself a risk premium. The episode demonstrated that tariff policy can change with a single social media post, in either direction. This creates a volatility premium that is difficult to hedge: traditional portfolio protection (options, diversification, cash buffers) is effective against market risk but less effective against policy risk that can reverse in minutes. The market’s ability to shrug off enormous losses with equal-and-opposite gains within days reflects not resilience but fragility: the underlying fundamentals did not change between 2 April and 9 April; only the president’s social media post did.
Implications for Investors
Maintain exposure through volatility. The investors who benefited most from the April episode were those who held through the sell-off and were positioned for the recovery. The 9.52% single-day gain was the kind of return that cannot be captured by investors who sold during the panic. Missing the best days is as damaging as missing the worst days is beneficial.
Cash buffers are a strategic asset. Investors with available cash during the 8 April low were able to deploy at valuations that proved extraordinarily attractive within weeks. A 5-10% cash allocation is not a drag on returns in an environment where policy-driven dislocations create periodic buying opportunities.
Favour companies with domestic supply chains and pricing power. The tariff regime, even in its paused form, creates structural headwinds for companies dependent on cross-border supply chains. Domestic manufacturers, service-oriented businesses, and companies with sufficient pricing power to pass through tariff costs are better positioned than importers with thin margins.
The tariff deadline creates a calendar risk. The 90-day pause has a defined expiration. If negotiations do not produce agreements, the reciprocal tariffs can be reimposed. The market is currently pricing the assumption that reimposition is unlikely, but the Liberation Day experience demonstrated that assumption-based pricing is vulnerable to policy surprise. Position sizing should reflect the binary risk around the pause expiration.
Conclusion
The 90-day tariff pause produced the third-largest single-day gain in the S&P 500’s post-war history, reversing a policy-driven sell-off that had pushed the market to the brink of a bear market in just seven trading sessions. It demonstrated that the bond market remains the ultimate check on fiscal and trade policy, that the administration’s tariff threats are a negotiating tool with real but negotiable consequences, and that the most dangerous moments in this market cycle are not the sell-offs themselves but the risk of capitulating during them. The pause was a reprieve, not a resolution. The tariff regime remains, the uncertainty persists, and the next policy surprise is, by definition, unknowable.
Related Reading
The tariff pause followed the market turmoil we covered in Liberation Day Tariffs: Markets Plunge on Sweeping IEEPA Tariffs. For the legal outcome that ultimately resolved this trade policy saga, see Supreme Court Strikes Down IEEPA Tariffs in Landmark Ruling.
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