Unexpected 90-day tariff truce triggers sharp rally, easing pressure on Fed and recession outlook
On Monday, US stocks surged after US and China agreed to sharply reduce tariffs for 90 days, triggering one of the biggest single-day rallies in months, as reported by BNN Bloomberg.
The S&P 500 rose 3.3 percent, the Dow Jones Industrial Average gained 1,160 points or 2.8 percent, and the Nasdaq Composite jumped 4.3 percent, entering a new bull market by closing more than 20 percent above its April low, according to The Wall Street Journal.
The rally followed weekend negotiations in Geneva, where both countries committed to rolling back reciprocal tariffs.
The US will cut tariffs on Chinese goods to 30 percent from as high as 145 percent, while China will reduce levies on US goods to 10 percent from 125 percent, as per a joint statement cited by BNN Bloomberg.
However, a 20 percent US tariff tied to fentanyl-related trade will remain.
Shares of companies with significant exposure to Chinese imports posted sharp gains.
Lululemon, which sources more than a quarter of its fabric from China, rose 8.7 percent.
Best Buy climbed 6.6 percent, and Amazon advanced 8.1 percent.
Nike gained 7.3 percent.
Carnival jumped 9.6 percent and Delta Air Lines increased 5.8 percent on hopes that reduced trade barriers would revive discretionary travel spending, according to BNN Bloomberg.
Smaller US companies, which are more exposed to domestic economic shifts, also saw a boost.
The Russell 2000 index rose 3.4 percent.
Goldman Sachs cut its US recession probability to 35 percent from 45 percent and raised its growth forecast, as reported by The Wall Street Journal.
Jonathan Pingle, US chief economist at UBS, estimated that the tariff cuts could add 0.4 percentage points to US GDP this year.
That lift comes after the US economy shrank at a 0.3 percent annualised rate in the first quarter, according to BNN Bloomberg.
Carol Schleif, chief market strategist at BMO Private Wealth, noted the truce would allow retailers and suppliers to restock in time for the back-to-school and holiday seasons.
The yield on the 10-year Treasury rose to 4.47 percent from 4.37 percent, and the two-year yield increased to 4.00 percent from 3.88 percent.
Traders now expect only two interest rate cuts from the Federal Reserve this year, based on CME Group data cited by CNBC.
The US dollar strengthened against the euro, yen, and franc.
Gold prices fell as investors backed away from safe-haven assets, and oil prices climbed amid expectations for higher fuel demand, according to BNN Bloomberg.
Despite Monday’s optimism, several analysts warned the path ahead remains complex.
Scott Wren of Wells Fargo Investment Institute said there is “no reason to believe that this will be anything other than a slow process.”
US Treasury Secretary Scott Bessent told CNBC that more meetings would begin in the coming weeks but described it as unlikely that tariffs will fall below the 10 percent level.
US President Donald Trump said the talks resulted in a “total reset” with China, calling it a “very good deal” and noting he might speak with Chinese President Xi Jinping later this week, as per The Wall Street Journal.
Markets across Europe and Asia also rose, though less sharply than in the US, according to BNN Bloomberg.
Stock futures were little changed in overnight trading as investors awaited the US consumer price index report. The index is expected to remain at a 2.4 percent year-over-year rate in April, with core inflation at 2.8 percent, as per CNBC.
Brent Schutte of Northwestern Mutual Wealth Management said markets will closely examine whether recent business cost increases have begun feeding into US consumer prices.
