How stock price levels keep climbing despite general anxiety over US tariffs

Despite looming concerns about new tariffs threatened by President Trump, US stock markets have been on a surprising upward streak. While businesses and ordinary Americans brace for economic fallout, major indices like the S&P 500 and Nasdaq have surged to record highs, which is reflected in places like retirement accounts.

This apparent contradiction—strong market performance amid looming trade uncertainty—has raised questions about what’s really driving investor confidence. The NPR publication took a closer look and reveals four key factors shaping this economic paradox in their latest article:

1. The Economy Remains Resilient

At the heart of the current market rally is a simple but enduring truth: it’s still the economy, stupid. Despite fears of economic fallout from tariffs, the broader US economy has outperformed expectations. Inflation, while rising to 2.7% in June year-over-year, hasn’t spiked to alarming levels. Meanwhile, the labour market remains strong, with unemployment holding steady at a historically low 4.1%. Employers continue hiring, and layoffs remain subdued.

This resilience has not gone unnoticed by investors. Brad Peterson, national portfolio adviser at Northern Trust, notes that markets have responded to the economy’s stability in the face of trade threats. Although most economists anticipate slower growth in the second half of the year, and the chance of a recession in the next 12 months stands at 33% according to The Wall Street Journal, the current data is encouraging enough to sustain market optimism.

2. Corporate Earnings Are Holding Up

Another reason stocks are climbing: corporate America is doing better than expected. Earnings reports from major firms like Alphabet, Netflix, AT&T, and Hasbro have beat Wall Street expectations. Even if these results aren't stellar, they have helped restore investor confidence.

What’s more, companies are expressing cautious optimism. Delta Air Lines, for example, reported that customer confidence remains strong despite tariff-related concerns. This trend suggests that while American consumers may express economic anxiety, their actual behaviour—continued spending—is helping boost corporate revenues.

Amanda Agati, chief investment officer at PNC Asset Management, captures this paradox well: “We may feel bad. We may feel concerned, but the hard data would suggest our behaviour is something else entirely.”

However, not all sectors are thriving. General Motors reported a $1.1 billion profit loss due to higher tariffs, although it still remained profitable. Analysts warn that smaller businesses, lacking the scale and resources of large corporations, will be more severely impacted if the trade war intensifies.

3. Markets Believe Trump May Back Down

A third factor buoying markets is the perception that Trump’s tariff threats may not materialize fully. When the president first announced sweeping tariffs in April, markets tanked. But a 90-day delay—subsequently extended—led to a sharp rebound. Although a baseline 10% tariff remains in place, more severe measures have largely been postponed.

This has led to the rise of what’s informally known as the "TACO trade" — short for “Trump Always Chickens Out.” The phrase, coined by a Financial Times columnist, reflects investor belief that Trump’s initial bluster is often followed by watered-down actions. This strategy has reset market expectations: by proposing extreme tariffs and later settling on milder versions, Trump has managed to calm investors.

4. Lingering Fears About the Future

Still, underlying anxieties persist. Despite deals with select countries, the most significant trade relationships—those with China, Mexico, Canada, and the European Union—remain unresolved. And although current tariffs are milder than feared, the average tariff rate is still at its highest since the 1930s.

Over time, these import taxes will likely drive up prices for consumers and slow economic growth. While markets may have priced in the current landscape, there's concern that future escalation could tip the economy into recession.

In summary, the stock market’s recent highs reflect resilience in the face of adversity—buoyed by a strong labour market, solid corporate earnings, and investor belief in Trump’s negotiating strategy. But beneath the optimism lies a fragile confidence, with fears that the true cost of tariffs has yet to be fully felt.

By Nazrin Sadigova