BREAKINGVIEWS-Hopeful investors clutch to perilously thin reeds

By Sebastian Pellejero

NEW YORK, April 24 (Reuters Breakingviews) - It’s hard to let go of the past. Ever since President Donald Trump’s Liberation Day tariff barrage sparked a triple-whammy sell-off in stocks, government bonds and the dollar, markets have seized on any sign of a walk-back. The latest outbreak of optimism extends even to right-hand man Elon Musk, who on Tuesday said that he would refocus from government cost-cutting efforts and towards $800 billion carmaker Tesla TSLA.O. Treating political havoc as a distraction waiting to be cleared so business can go back to usual is misguided.

In the immediate term, tariffs of 145% on Chinese imports threaten a break between the world’s two largest economies. Trump’s ruminations over firing Federal Reserve Chair Jerome Powell risks the independence safeguarding the central bank’s economic management. Relief was understandable when, on Tuesday, Trump told reporters that he has “no intention of firing Powell" and that levies on China will “come down substantially.”

Investors responded with glee. Yields on 20-year U.S. Treasuries fell below 4.9%. The dollar, down 5% since April 2, perked back up. The S&P 500 Index .SPX opened 2% higher on Wednesday. Similarly, despite disastrous financial results, Tesla’s stock rose 7%.

The S&P 500’s price now sits at a little above its 10-year average as a multiple of expected earnings, according to LSEG data. Over those years, interest rates rose from near-zero to over 4%. Inflation remains above-target on an annualized basis. Re-localized supply chains are the talk of the day. Every factor that shaped the last decade is changing.

History warns about such disconnects. The “Nifty Fifty” stocks of the 1970s collapsed as the oil crisis took hold; Japan’s Nikkei 225 Index did not reclaim its 1989 peak until last year. In both cases, earlier excitement could not survive shifting conditions.

Consider Tesla. Despite promising to spend less time on them, boss Elon Musk says he plans to continue political engagements so polarizing that they have threatened maybe 20% of future demand, Wedbush analyst Dan Ives estimates. That’s especially risky when Musk must manage vital relationships with China and Europe, where manufacturing facilities reside.

And while U.S. corporate giants sit on billions in cash and mint enviable profits, the likes of China’s BYD and DeepSeek threaten American technological supremacy in cars and artificial intelligence, respectively. European policymakers are already moving to lessen trans-Atlantic dependence. Even if tariffs are reduced, they are unlikely to disappear entirely. And Trump, mercurial as always, could simply pivot again. Investors assuming that short-term static has cleared from an otherwise unchanged picture face a potentially rude awakening.

Follow @sptruestories on X

CONTEXT NEWS

President Donald Trump told reporters in the Oval Office on April 22 that he has "no intention of firing" Federal Reserve Chair Jerome Powell. Trump has leveled criticism at Powell for not lowering interest rates and has privately discussed whether he could fire the Fed chair, the Wall Street Journal reported.

Trump also said that tariffs on Chinese goods, currently set at 145%, will "come down substantially, but it won't be zero."

Separately, in an earnings call on April 22, Tesla CEO Elon Musk said that he plans to spend less time on his role leading the Department of Government Efficiency and instead will refocus on the electric-car maker. However, he plans to continue in the position "for as long as the President would like me to do so," saying that he may spend "a day or two per week on government matters."

The S&P 500 Index closed 1.5% higher on April 22, subsequently opening up a further 2% the next day. Tesla shares opened up 7% higher on April 23.