Corporate spreads have narrowed, and Treasury yields are less volatile, soothed by positive talk on tariffs. Stocks have recovered from their April 2 “Liberation Day” losses, but the dollar remains under pressure. Gold is the safe haven of choice.

But worries that tariffs and trade disruptions will impact the economy remain, and any sign that hard data is weakening or inflation is picking up could unleash another round of searing volatility. That is most visible in assets other than stocks.

Financial markets convulsed after Trump’s “Liberation Day” tariffs on dozens of countries were broader and higher than expected. Stocks fell sharply. Bond yields fell, too, but then rose erratically, while the dollar weakened. The president then paused the tariffs for 90 days on April 9.

President Donald Trump announced on Thursday that the U.K. was the first trading partner to agree to a new deal. Although the country has a trade surplus with the U.S., it agreed to a 10% minimum tariff on most exports.

“There’s a clear fragility here, because tariffs aren’t going back to zero,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. The U.K. deal indicates that 10% is the new minimum for tariffs, “which is a much higher tariff rate than we had before April 2,” he said.

The S&P 500 has since risen by about 2% above its April 2 close. That “is telling us [investors] think we’re going back to a zero-tariff world. The markets are way too ‘la la la’ that everything is going back to the pre-tariff time frame,” Bookvar said.

Trump has pledged more deals soon. Investors are focused on talks between Treasury Secretary Scott Bessent and Chinese officials, to be held in Geneva this weekend. On Friday the president suggested Chinese tariffs could be lowered to 80% from the current 145%.

As the tariff developments unfold, there continues to be an unusual decoupling of markets.

The dollar is 7.5% lower on the year against a basket of currencies and was weaker again Friday. Gold has benefited from the greenback’s lost luster, adding more than 26% since the start of the year.

“Gold and the dollar are at odds with the macro outlook that is being painted by the equity market,” said George Goncalves, MUFG head of U.S. macro strategy. “What if the dollar is telling the true story that there’s weakness out there, and U.S. assets aren’t going to get the kind of capital they used to?”

The 10-year Treasury yield rose to about 4.3% Thursday, and the 2-year yield to 3.85%.

“If you look at financial conditions, the reason why it’s better is all equities,” sid Goncalves. “Credit has retraced maybe a third to half of the move, whereas equities have retraced the whole thing.”

Bessent and many in the markets said tariffs would likely raise the dollar. Instead, it has moved lower.

“The dollar has only retraced about 20% of the [Liberation Day] decline. If you look at the Nasdaq, it has fully retraced. There is some permanent damage to the dollar in that sense,” said Hans Mikkelsen, head of U.S. credit strategy at TD Securities.

The shift away from dollar assets by foreigners and others has also shown up in the corporate debt market, which Mikkelsen said had been too richly priced at the end of last year. It hasn’t returned to those levels.

Yields on investment-grade corporate debt rose relative to Treasuries in the immediate aftermath of the April 2 tariffs, indicating investors were concerned that companies’ risk of default had grown. But those spreads have since fallen by roughly half, Mikkelsen said. The recent peak was 119 basis points on April 8, right before the pause. The spread is currently 102, compared with about 80 at the end of last year when U.S. assets were in high demand. A basis point is one-hundredth of a percent.

Mikkelsen said he believes the market is pricing in tariffs of about 10% across the board, but he expects the final levies to be higher. Trump needs tariffs to raise new revenue to pay for tax cuts, he said.

“He’s going to need to show hundreds of billions of offsetting revenues,” said Mikkelsen, adding tariffs of 25% could generate that. The president’s other goal is to rebuild U.S. manufacturing. “It can’t be just 10% tariffs because that is not going to drive a lot of companies to set up in the U.S. I think the markets are probably on average expecting 10%, which is one of the reasons I think this is the calm before the storm.”

Inflation data expected next week will give investors an important signal of how tariffs may his the stock market going forward. Mark Cabana, head of U.S. rates strategy at Bank of America Investors, said he is concerned about stagflation. A bad reading on the consumer price index as some point could prompt the Federal Reserve to openly consider increasing interest rates.

With growth already slowing, “that’s a very bad recipe for risk assets,” he said.

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