Wall Street Dives into Gains: US-China Tariff Relief Sparks Stock Market Rally

US stocks experienced a notable surge recently, driven by optimism from a new tariff agreement between the US and China. This deal hints that the trade conflict might be moving toward a calmer phase.

The S&P 500 jumped by 3.3%, while the Nasdaq soared by 4.3%. The dollar also rose, gaining 1.5% against other currencies. Analysts are cautiously optimistic about the economic outlook, suggesting that while growth may slow down, a recession isn’t on the immediate horizon. "Peak tariffs are behind us," said Ajay Rajadhyaksha, head of research at Barclays.

The latest agreement involves reducing tariffs for the next 90 days: US tariffs will drop to 30%, while China’s tariffs will come down to 10%. This change comes after ongoing discussions in Geneva. Previously, these tariffs had contributed to a significant decline in the stock market, causing the S&P 500 to drop 15%. Now, it has mostly recovered, sitting just 0.6% lower for the year.

Goldman Sachs recently revised its prediction for a potential recession in the US, lowering it to 35% from 45%. This shows a shift in confidence as the trade discussions unfold. Analysts like Rajadhyaksha believe that the market is settling into a new normal, expecting 10% tariffs for most goods and 30% tariffs specifically for China.

Historical context adds depth to these events. The current tariff landscape is significantly influenced by previous trade policies, which often saw lesser tariffs compared to the current rates—total tariffs on China may now average around 40%, while US tariffs might be closer to 25%.

As investor sentiment shifts, so does the bond market. On the same day as the stock surge, US Treasury yields rose, indicating that the fear of immediate recession is fading. The 10-year yield reached a one-month high, suggesting that traders expect better growth ahead.

Certain sectors stood out during this rally. Tech companies and retailers saw substantial gains; for instance, semiconductor stocks climbed by 7%, while major retailers like Target and Home Depot also recorded impressive increases.

Despite this optimism, some analysts urge caution. Experts from Deutsche Bank noted that challenging tariffs on specific sectors, such as pharmaceuticals and semiconductors, may still emerge in the coming weeks. Priya Misra from JPMorgan highlighted ongoing uncertainties in supply chains and investments, reminding us that recovery may take time.

As the markets continue to react, the trade negotiations between the US and China will likely play a crucial role in shaping economic conditions in the near future. For more information on this evolving situation, you can refer to Financial Times.

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