Market Rebound Continues Amid Trump Tariff Relief and Bond Market Concerns
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The stock market extended its rebound from the previous day, pointing toward a higher open fueled by gains in AI-related stocks like Micron Technology and Broadcom. However, the market’s advance was tempered by lingering caution, as equities held near record highs and concerns surrounding the global bond market persisted.
Despite positive momentum, a degree of hesitation remained in risk-seeking behavior. One analyst noted that ongoing anxieties about the bond market, particularly recent surges in Japanese yields to multi-decade highs, contributed to this cautious sentiment. Bitcoin was also reportedly struggling to attract buyers near the $90,000 mark, further indicating a degree of risk aversion. Adding to the complexity, traders are closely monitoring the accelerating earnings season, with the focus now shifting to the technology sector following positive results from banks last week. Intel is slated to release its earnings report after the market closes today.
The “TACO Trade” and Trump’s Davos Impact
The past week has been heavily influenced by developments surrounding former President Donald Trump. Following an initial market slide triggered by his weekend announcement of new tariffs, markets exhibited caution. This caution proved prudent in light of events at the World Economic Forum in Davos.
Initially, markets reacted positively to Trump’s speech, where he ruled out the use of military force to acquire Greenland. This announcement spurred gains for stocks, while simultaneously pushing down the value of the and . However, doubts quickly emerged regarding the fate of the proposed tariffs and whether Trump might leverage them for alternative gains.
“Military intervention was largely considered unthinkable,” a senior official stated, “and few believed the US would seriously pursue that path.” Ultimately, Trump’s speech did not introduce any new policy changes, as the threat of tariffs remained in place.
The situation dramatically shifted when Trump announced the cancellation of the tariffs, effectively eliminating the risk of a renewed trade war with Europe. This decision followed discussions with NATO leadership and a framework agreement regarding Greenland. The resulting market reaction, dubbed the “TACO trade,” triggered one of the most significant rallies in recent months, with index futures nearly erasing the week’s earlier losses.
Japan’s Bond Market and Global Risk
Meanwhile, turmoil in Japan’s bond market presents an additional risk factor for the S&P 500. The country’s surged to a record high amid growing fears that a snap election called by Prime Minister Sanae Takaichi could lead to policies that further weaken Japan’s already strained public finances.
Bond yields experienced their largest movements since Trump’s initial trade war announcement in April of last year, before easing slightly yesterday. Today, however, they are rebounding, putting pressure on the . Should Japanese bond yields continue to rise sharply, risk assets could face increased pressure.
S&P 500 Technical Analysis
Analysis of the S&P 500 futures chart suggests the bullish trend remains intact, as a major breakdown was not observed during the brief tariff-related dip. The pattern of higher highs and higher lows has been maintained, despite a temporary drop below 6,900. This level now represents the first line of defense for bulls, followed by 6,866.
Yesterday’s low of 5814 is a critical support level that should ideally not be tested following the recent recovery. However, a move below this level could trigger a sharper correction and follow-up technical selling, with liquidity below the December low of 6771 as the initial downside target.
On the upside, the gap from Friday’s close is at 6976. Breaking above this level, the next key target is 7,000, followed by the all-time high from last week at 7036, beyond which Fibonacci extension levels will be closely watched. “.
