NEW YORK โ A wave of optimism swept over the stock market on Monday following the decision by China and the United States to suspend their escalating trade conflict for 90 days. In this temporary ceasefire, the two largest global economies agreed to significantly reduce many of their tariffs against each other. Prior to this truce, economists forecasted a potential recession and anticipated shortages on U.S. shelves.
The S&P 500 surged by 3.3%, moving within 5% of its peak which it had set in February. The index has been on a rise since a steep decline last month, buoyed by possibilities that President Donald Trump may lessen his stance on tariffs following successful trade negotiations with various other nations. This recovery brought the index back above its levels from April 2, the day Trump announced broad tariffs which had sparked fears of a recession.
Likewise, the Dow Jones Industrial Average soared by 1,160 points, an increase of 2.8%, while the Nasdaq composite shot up by 4.3%.
The trade truce was described as a โbest case scenarioโ by analysts, with the tariff reduction surpassing many investorsโ expectations. Furthermore, the easing of tariffs fueled a rise in crude oil prices as a less encumbered global economy is expected to boost fuel consumption. Concurrently, the U.S. dollar gained strength against other major currencies such as the euro, the Japanese yen, and the Swiss franc. Additionally, Treasury yields increased amid expectations that the Federal Reserve may not need to reduce interest rates as much as previously anticipated to shield the economy from tariff impacts. Meanwhile, gold prices declined as investor demand for safer assets waned.
Jonathan Pingle, Chief Economist for the U.S. at UBS, suggested that this recent development could boost the U.S. economyโs growth by 0.4 percentage points this year, a welcome change for an economy which had contracted by an annual rate of 0.3% in the earlier months.
U.S. officials announced in a joint statement that tariffs on Chinese imports would be lowered from 145% to 30%, while China committed to reducing tariffs on U.S. goods from 125% to 10%. This 90-day pause allows further dialogue following significant progress achieved during the weekend discussions in Geneva, Switzerland.
This reprieve is timely for economic activities, especially as it allows enough time for retailers and suppliers to prepare for crucial periods such as back-to-school and holiday shopping seasons, noted Carol Schleif, Chief Market Strategist at BMO Private Wealth.
Despite recent positive developments, sentiments remain wary as there are no guarantees in the ongoing negotiations, as pointed out by Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, emphasizing the intricate challenges that remain.
This recent thawing in relations mirrors a previous agreement between the United States and the United Kingdom, which will reduce tariffs on many UK exports to 10% though complete implementation details remain.
Up ahead, upcoming economic reports concerning inflation and consumer sentiment in the U.S. may reflect the extent of impact incurred due to tariff uncertainties. However, Wall Street embraced the optimism with broad gains across various sectors.
Smaller companies, due to their greater reliance on the domestic economy, saw robust gains as the Russell 2000 index advanced by 3.4%. Apparel firms experienced notable boosts with Lululemon climbing 8.7%, influenced by the fact that a significant portion of their materials originate from China, easing cost pressures. Nike saw an increase of 7.3% as well.
Travel firms thrived amid hopes that eased tariffs would incentivize consumer spending on travel and leisure. Carnival posted a 9.6% rise, accompanied by Delta Air Lines, which ascended by 5.8%.
Retailers, heavily reliant on imports from Asia, also profited. Best Buy gained 6.6% and Amazon advanced 8.1%. Overall, the S&P 500 increased by 184.28 points to close at 5,844.19. Meanwhile, the Dow Jones Industrial Average grew by 1,160.72 points to 42,410.10, as the Nasdaq composite jumped 779.43 to settle at 18,708.34.
Global stock markets in Europe and Asia mirrored U.S. gains, although not as profoundly, with many indexes recording rises.
In the bond arena, the 10-year Treasury yield climbed to 4.47% from a previous 4.37%. The two-year Treasury yield, more directly linked to Federal Reserve rate movements, witnessed a more marked increase from 3.88% to 4.00% as traders adjusted their expectations for potential rate cuts by the Fed this year.
According to CME Group data, many market players are now expecting just two rates cuts over the current year.