Despite the 9.52% advance in the S&P 500 Index on Wednesday following the rolling back of punitive global tariffs, American financial conditions stand at 1.1 standard deviations below neutral, indicating a drag on overall growth.
With the effective tariff on imported goods having increased to 25% following a series of simultaneous shocks, it will be an uphill climb for the economy to avoid a recession this year.
U.S. equity markets now stand at 2.67 standard deviations below neutral following weeks of volatility, according to the RSM US Financial Conditions Index. Uncertainty over monetary policy and the economy has contributed to excessive volatility across the bond market, which is one standard deviation below neutral, the index shows.
In our estimation it was the spike in yields that created the conditions for the president to seek an offramp from what has been a haphazard rollout of the new tariff regime.
While the bond market remains undefeated when it comes to economic policy, a one-day jump of 9.52% in the benchmark U.S. equity index is not a sign of healthy financial markets.
Read more of RSM’s insights on the economy and the middle market.
