Just treat it as if the "Liberation Day" never happened! The easing of China-U.S. trade tensions boosts a strong rebound in U.S. stocks

Media reports indicate that as Wall Street experiences a rebound, the current trend of the U.S. stock market seems almost as if the impact of Trump's tariff "liberation day" never happened.

Data shows that the S&P 500 index surged 3.26% on Monday, and the Nasdaq has entered a technical bull market, rising 22.5% since its low on April 8, driven by a strong rebound in tech giant stocks. The dollar has strengthened, U.S. Treasury prices have fallen, and investor expectations for the number of Federal Reserve rate cuts this year have also receded.

Media reports suggest that the easing of U.S.-China trade tensions has released the clearest signal for investors so far: the Trump administration is adopting a more moderate stance to handle the conflicts that had previously caused turmoil in global markets. Amid optimistic sentiment that the U.S. economy may avoid recession, traders currently expect the Federal Reserve to cut rates only twice in 2025.

Mark Dowding, Chief Investment Officer of BlueBay Fixed Income, stated,

“People are withdrawing the allocations they previously made in anticipation of a recession, which is reasonable, as the market was indeed concerned about a potential 'cliff edge' scenario, such as a sudden halt in the U.S. economy or a sudden disruption in trade. But now those concerns have been postponed.”

Large tech stocks, which had previously suffered significant losses, are leading the market. Meanwhile, safe-haven assets have all declined, with gold, the yen, and the Swiss franc weakening simultaneously. The euro briefly dropped 1.6% to 1.1072 USD.

Interest rate swap trades linked to Federal Reserve meetings indicate that the market currently expects a 0.25 percentage point rate cut in September. Just last week, the market anticipated three rate cuts this year, with the first cut potentially as early as July.

On Monday, May 12, the Ministry of Commerce released a joint statement on the U.S.-China Geneva trade talks, in which the U.S. committed to canceling a total of 91% of tariffs imposed on Chinese goods under Executive Order No. 14259 dated April 8, 2025, and Executive Order No. 14266 dated April 9, 2025, and to modifying the 34% reciprocal tariffs imposed on Chinese goods under Executive Order No. 14257 dated April 2, 2025, with 24% of the tariffs suspended for 90 days, retaining the remaining 10%. Correspondingly, China will cancel a total of 91% of the retaliatory tariffs on U.S. goods; regarding the 34% reciprocal tariffs, it will suspend 24% of the tariffs for 90 days, retaining the remaining 10%.

Roberto Scholtes, Head of Strategy at Singular Bank, stated that the U.S. stock market is unlikely to return to historical highs in the short termHe reminded that even if China and the U.S. ultimately reach an agreement, companies have already suffered substantial damage due to the uncertainty and chaos brought about by Trump's economic policies.

"We have already bought on dips, and now we are pausing operations, but we are also weighing whether to take the opportunity to sell at a high."

Currently, trade pressures have begun to have a tangible impact on American companies. Companies such as United Parcel Service (UPS), Ford, and Mattel have withdrawn their performance guidance due to tariff uncertainties, stating that they find it difficult to cope with the constantly changing trade environment. Media analysis shows that S&P 500 constituent companies derive an average of 6.1% of their revenue from China or Chinese enterprises in 2024.

However, some investors believe that this shift in market sentiment is enough to drive a recovery in global markets.

Since peaking in February, the S&P 500 index has fallen nearly 19% due to concerns over the global trade war, but it has now recovered about half of that decline. In the foreign exchange market, the rebound has been relatively mild. The Bloomberg Dollar Index is still 2.7% lower than its peak on April 2.

David Kruk, head of trading at La Financiere de L’Echiquier, said:

"For stock investors, the 'buying opportunity' is gone. If you haven't gotten on board yet, it's really hard to enter the market now. This is a real pain trade for those who missed this rebound."

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