Is the Trade War Actually Over?

Tariffs may be cooling off, but the market’s still feeling the heat. Steve Sosnick breaks down what investors are really pricing in—and whether the peace is just a pause.

Summary – IBKR Podcasts Ep. 257

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this week’s Market Minute. Joining me is Chief Strategist Steve Sosnick. Welcome, Steve. How are you? 

Steve Sosnick 

I am doing wonderfully, Andrew. How about yourself? 

Andrew Wilkinson 

All right. I’ve had a couple of days off, completely missed the news, but I’m seeing that the S&P 500 index is about 18% off its April lows, and that puts us back in the black for the year to date 2025. What’s going on? Is the tariff tantrum over, and do you believe the rally? 

Steve Sosnick 

The market’s acting as though the tariff tantrum is over. I don’t know that it really is, because when you really step back and say, wow—30% vis-a-vis China is way better than 145%, but it’s still way above where we came into the year thinking about. And 10% tariffs across the board again sound much better than those Liberation Day numbers, but they’re not good. 

But this is telling us that the market—really, price action is all that matters to a whole generation of traders. And once we got the lift off the bottom… Also, I think once you get sentiment so terrible, there’s no place else to look but up. But the motif of the last couple of years has been: buy every dip—check, then chase every rally—check. And we’re seeing a lot of rally chasing. 

Andrew Wilkinson 

What’s the net effect been from the on-again, off-again headlines on the U.S. dollar and bond yields? What’s it look like now? The tide’s going out? 

Steve Sosnick 

The dollar had a—tried to stage a brief rally after the initial—I don’t, I hate to call it a breakthrough, but just after the weekend. But that seems to be fading again. I do think the tide is flowing out for the dollar. I think that U.S. investors, the ones who are not just caught up in momentum—or maybe if they are—are seeing that there are values elsewhere around the world. 

I think to some extent, foreign investors and certainly foreign central banks are realizing that maybe having the dollar as the end-all be-all is not all it’s cracked up to be, because our policies can shift so rapidly. So I think that’s the tide going out. 

I think initially we saw the big wave, but now I think it’s just more of a gentle tidal action with money flowing away. And you see it in the way that the U.S. stock markets trade: they made futures overnight, up or down a couple points here and there. Then you see futures wake up as U.S. traders wake up, and then you see the rally into the open. 

I haven’t finished all the numbers—I was planning to work on this today. And what we’d seen over the last few years was that some of the rallies were occurring overnight as money was flowing into U.S. futures. Some of the rallies were occurring during the day. Now lately it’s almost all during the day. There’s huge outperformance between 9:30 and 4:00 Eastern time, and that is purely the fact that U.S. investors are leading the parade. 

Andrew Wilkinson 

And what’s been the net effect on bond yields though? 

Steve Sosnick 

Bond yields—we’ve seen them tick up a bit, certainly because the market decided that the Fed is much less likely to cut rates. We see that in ForecastX predictions. We see that in CME FedWatch. We’ve gone from nearly four rate cuts in 2025 to basically two in 2025, depending on your timeframe and your measure. 

And that is actually a big tell, because it shows you where the market was thinking. I think a lot of people, including myself, were really thinking that the Fed was going to be more concerned with inflation than recession, and I still believe that’s the case. The market decided that we’re less recessionary as a result, and therefore the Fed will have less room or need to cut rates. 

I was never in the camp that the Fed was going to be super aggressive about cutting rates, because I think they don’t want to be on the wrong side of history—being seen as cutting rates and re-stoking inflationary fears. I think that is still their bigger worry. Because I think if we go from 4.2% unemployment to 4.4% unemployment, that’s not necessarily going to spur the Fed to move. 

So you probably have to get somewhere to 5.5% or above to really get the Fed off the sidelines and say, “Forget it. So what about inflation? We’ve gotta cure the economy.” But bond traders have certainly caught up to that. The two-year yields have risen accordingly, and 10-years are starting to rise as well. 

We haven’t really seen the curve steepen in a huge way, and that’s one of the tells that I’m looking for, because I think as we get into the budget negotiations—which is way too long of a topic for a short-form podcast—I think you will start to see that wave of international investors worrying again about the fact that the negotiations aren’t about whether to balance the budget or have some deficit spending. It’s really about how much deficit spending can we get away with. 

And I think that’s going to be its own set of issues, and you would see that reflected in 10-year yields rising vis-à-vis the short end. 

Andrew Wilkinson 

Steve, you answered one of the earlier questions saying that the traders are chasing the rally. There’s a lot of momentum behind this. Does that mean that we’re throwing the fundamentals out the window at this point? 

Steve Sosnick 

In its purest sense, momentum trading or momentum investing is saying, “I don’t care about fundamentals. They’re irrelevant to me. All that matters to me is price action.” Now, that’s taken to an extreme—but I do actually think we are taking it somewhere close to that extreme, where you’re saying, “You know what? I’m buying it because it’s going up.” 

You know that these two cars can make it across the finish line. So what if one might be a jalopy, one might be a race car? But as long as they can both make it past the finish line, I’ll bet that either of them can do it. 

Over time, it becomes very hard to escape fundamentals. But in a short period of time like we’re in now, where we’ve had a huge psychological flip, most traders are saying, “I don’t really care about fundamentals. I’m looking at tomorrow.” 

One of the key earnings is going to be Walmart, which I think is really going to give us a lot of insight into the consumer. But Walmart is trading at about 37 times trailing earnings. Is Walmart arguably the bellwether and benchmark for retail in the U.S.? Absolutely. Is 37 times earnings appropriate? We’ll see. 

Andrew Wilkinson 

Brilliant. Steve Sosnick, as always, thank you very much indeed for joining me. Thanks for your time. And to the audience, thank you for joining me. And don’t forget to subscribe wherever you download your podcasts from. Steve, thank you. 

Steve Sosnick 

My pleasure, Andrew. Talk soon. 

Andrew Wilkinson 

Okay, bye for now, everybody.