US stock indices surged on Monday after the preliminary US-China pause on tariffs, bolstering hopes for avoiding a global recession due to a destructive trade war between the two largest economies.
Tariff Pause Restores Market Optimism
US Treasury Secretary Scott Bessent said the talks with China were very productive, with both sides cutting tariffs by 125% for 90 days.
Bessent expects to meet Chinese officials again in upcoming weeks to reach a more extensive deal.
Tech Shares Lead the Way
Tesla’s share spiked 7%, while Apple, Nvidia rose 6% and 5% respectively. Companies reliant on Chinese supply chains surged, with Dell Technologies up 8%, Amazon rose 8%, and Best Buy added 6%.
De-escalation of the Trade War
US-China trade tensions reached a peak in April, after President Donald Trump raised tariffs on Chinese goods to 145%, with China retaliating with 125% tariffs on US goods.
The escalation hammered the S&P 500 by 20% before stock indices regained their footing quickly after Trump paused reciprocal tariffs on most countries.
Markets Bet on Future Deals
Investors are betting the US administration will manage to make additional trade deal in the upcoming three months, especially with China, starting with the current announcement, and following a UK deal announced last week.
Market Response: Cautious Optimism
Analysts note the US-China deal is a huge surprise, but it remains a de-escalation step and note a final agreement, with the pause on tariffs still temporary.
US treasury yields surged as recession odds declined, nudging investors to reassess the odds of Fed rate cuts this year, while oil prices rallied as concerns about a global recession diminished.
Defensive Stocks Drop as Tensions Cool
So-called “defensive stocks” tumbled as tensions cooled and haven demand tumbled, with Coca-Cola’s share down 1.4%, while Philip Morrison shed 2.9%, and AT&T gave up 3%.
Performance at the Close
Dow Jones closed up 2.8%, or 1160 points to 42410 points, with a session-high at 42,418 points.
S&P 500 rallied 3.3% at the close, or 184 points to 5844 points, with the index up over 20% since April lows, reducing this year’s losses to 0.6%.
NASDAQ spiked 4.3%, or 779 points to 19,708 points, with a session-high at 18,710 points.
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