The ASX 200 is up 6% today. Here's what happens next

The S&P/ASX 200 soared 6.3% in early trade on Thursday, setting the stage for its biggest single-day gain since March 2020 and the fourth largest since 1980 if the index closes at these levels.

The rally kicked off halfway through the overnight US session when President Trump announced a 90-day pause on reciprocal tariffs for most countries, while intensifying his trade standoff with China.

“Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” he declared on Truth Social.

He added that many nations, rather than retaliating, had reached out for negotiations. These countries will face a reduced reciprocal tariff rate of just 10% during the 90-day pause, also effective immediately.

A rally of such magnitude is rare. Even the most significant bounce-back days during the pandemic and the Global Financial Crisis typically peaked at 4-5%. So, what does history tell us about such dramatic one-day gains?

The biggest one-day gains

The table below ranks the S&P/ASX 200’s largest single-day increases since 1980 and tracks how the market performed afterward.

(Note: Performance reflects price changes, not total returns.)

S&P/ASX 200 performance for 10/04/2025 as of 10:10 am AEDT | Source: Market Index

Big rallies only occur during crisis

These massive rallies tend to emerge during times of economic turmoil, such as the following:

• The early 1980s were marked by stagflation — high inflation combined with stagnant economic growth — triggered by the 1979 oil crisis after the Iranian Revolution.

• The 1987 crash, known globally as Black Monday (October 19, 1987), witnessed a 25% crash for the All Ordinaries.

• The 1997 Asian Financial Crisis hit several key Australian trading partners like Indonesia, South Korea and Malaysia. As Asian demand slumped, commodity prices fell, dragging down mining stocks.

• Then came the 2008 Global Financial Crisis and, more recently, the 2020 pandemic

What history says about big rallies

In the short-term, the outlook is underwhelming and volatile following historic rallies. Average and median returns, along with the percentage of positive outcomes, all trend negative. In the month that follows a big bounce, the S&P/ASX 200 is down an average 2.4% and positive only 40% of the time. This choppy performance reflects the lingering uncertainty and volatility triggered by the underlying economic shock.

The process of finding a bottom also tends to be choppy and often sees a re-test of lows. You almost never see a perfect 'V-shape' bottom – instead, the path to recovery is littered with sporadic green days amid continued selling before a true low is established.

However, the picture tends to brighten after six months. By then, the worst is typically priced in, and central banks often step in with interest rate cuts or fiscal stimulus to steady the ship.

What if it's a recession?

The magnitude of the recent decline, coupled with the extreme levels of volatility and bearish sentiment, generally occur near market bottoms — unless a recession looms.

Buying into rallies like those in late 2007 or early 2008, for instance, would have left investors down 5-30% a year later. In such cases, these sharp bounces become selling opportunities rather than buying signals.

The 90-day tariff pause still yields uncertainty. It could pave the way for a broader trade truce — or lead to renewed disputes with major partners like the EU, Vietnam, and India. Meanwhile, the U.S. and China, the world’s two largest economies, are locked in an escalating tariff war, with rates now at 125% and 84%, respectively.

Goldman Sachs briefly shifted its base case to a recession forecast last night, only to revert to its prior non-recession outlook after the tariff pause was announced.

"Together, these tariffs (10% minimum portion plus sector-specific tariffs) are likely to sum to something close to our previous expectations of a 15 pp increase in the effective tariff rate," analysts wrote on Thursday. "As a result, we are reverting to our previous non-recession baseline forecast with GDP growth of 0.5% and a 45% probability of recession."

The bottom line

The market is still grappling with extreme volatility. Some of the best and worst days cluster together: Monday’s 4.2% drop gave way to Tuesday’s 2.2% rebound, while Wednesday’s 1.8% decline preceded today’s 5-6% surge. The volatility, in terms of both price action and headlines, makes it incredibly hard to have any conviction in either direction.

What’s clear is that, in hindsight, these events often mark compelling long-term buying opportunities — provided a recession doesn’t take hold. But navigating this tightrope is the real challenge.