The market's response on February 13 encapsulated a shift in investor sentiment, sparked by the new administration's indication that government departments would discuss the concept of "reciprocal tariffs." Following this news, major U.S. stock indices experienced a collective rallyInvestors interpreted this as a sign that fears of the government imposing uniform tariffs—a worst-case scenario for many—had temporarily receded.

This shift in sentiment manifested in a significant influx of capital into stock markets, causing European and American indices to soar to new heightsFor the first time in approximately a month, the global market capitalization set a new all-time recordThis activity suggested that the U.S. government's cautious approach to tariffs had quelled some of the anxiety surrounding potential economic downturns, allowing investors to turn their focus more towards corporate profit growth.

According to data compiled by QUICK FactSet, the global stock market capitalization surpassed $125 trillion last weekPrior to the new government taking office, in mid-January, market apprehensions regarding tariffs, rising inflation, and increasing interest rates had driven total market capitalization down to $118 trillionThis sharp rise signifies a distinct change in outlook over just a few weeks.

The European markets played a crucial role in lifting the overall indicesGermany's stock market index, for example, set a historical high for four consecutive days leading up to February 13. The UK’s FTSE 100 index peaked on February 12. Meanwhile, the S&P 500 was just shy of surpassing its January record by a mere 0.1%. Such performances highlight the resilience and reaction of markets in an environment fraught with economic uncertainty.

About a month has passed since the new U.S. government assumed office, and the uncertainties surrounding tariffs have intensified global political and economic concernsTim Ghriskey from Ingalls & Snyder noted that the market seemed to be "ignoring the tariff implications," as buying pressure surrounded stock purchases.

The February 13 market reaction illustrated this evolving investor mindset particularly well

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After the announcement of federal discussions regarding reciprocal tariffs, the major indices not only surged but the VIX index, which reflects market wariness, also fellThis index, often dubbed the "fear index," suggests anticipated volatility in the S&P 500; on February 14, it recorded a low of 14.77, marking the lowest level since the start of the year and remaining comfortably below the threshold of 20, widely viewed as indicative of a neutral outlook.

Initially, there was significant trepidation surrounding the potential introduction of uniform tariffs and the onset of a tariff retaliation battleThe U.S. administration had proposed imposing a uniform tariff ranging from 10% to 20% on imports from all countriesShould such tariffs come into effect, it could trigger countermeasures from other nations, thrusting the global economy into a scenario of stagflation, where inflation persists alongside economic sluggishness.

However, the market's latest reading indicates that the most grim possibilities concerning uniform tariffs appeared to be postponedEric Wallerstein from Yardeni Research pointed out that "the reciprocal approach allows for more room for negotiation than signing bilateral trade agreements," a viewpoint that bolsters the market’s cautious optimism.

In a detailed analysis, JPMorgan forecasted the potential impacts of a series of U.S. tariffs, predicting a downward adjustment of earnings expectations for European indices by about 5 to 8 percentage points from an anticipated growth of 8% by 2025. Similarly, projections for U.S. stock indices, which originally had an expected growth of 11%, were also revised downward by approximately 8 percentage pointsSuch shifts underscore the potential volatility and unrest that could ensue were nations to adopt retaliatory tariff measures.

The hedge fund sector reacted swiftly to the shifting landscapeGoldman Sachs reported a significant uptick in trades concerning IT-related stocks from January 31 to February 6, with buying activity reaching the second-largest scale observed in the last five years.

Moreover, European enterprises are projected to leverage high earnings expectations

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