Stocks jump after US-China cut tariffs to 10% and agree to 90-day truce following Geneva talks
On Monday, stocks soared after the United States and China announced a 90-day truce in their trade war, cutting tariffs to 10 percent and triggering broad gains across equity markets.
Both countries agreed to significantly reduce most of the tariffs imposed on each other’s goods following two days of negotiations in Geneva.
According to a joint statement cited by BNN Bloomberg, the US will lower tariffs on Chinese goods to 30 percent, down from a previous high of 145 percent, while China will reduce its retaliatory tariffs on US goods to 10 percent, from 125 percent.
The agreement excludes a separate 20 percent US tariff related to China's role in the fentanyl trade, which remains in effect, as reported by The Wall Street Journal.
US President Donald Trump described the outcome as a “total reset” in trade relations and suggested he may speak with Chinese President Xi Jinping later in the week.
According to US Treasury Secretary Scott Bessent, meetings to negotiate a broader deal are expected to begin in the coming weeks.
Bessent told CNBC that any further cuts to reciprocal tariffs below 10 percent would be unlikely.
Following the announcement, the S&P 500 climbed 184.28 points, or 3.3 percent, to close at 5,844.19, as reported by BNN Bloomberg.
The index is now within 5 percent of its record high set in February.
The Dow Jones Industrial Average jumped 1,160.72 points, or 2.8 percent, to 42,410.10, while the Nasdaq Composite surged 779.43 points, or 4.3 percent, to 18,708.34—entering a new bull market by closing more than 20 percent above its April low, according to The Wall Street Journal.
Economist Jonathan Pingle of UBS estimated the tariff rollback could add 0.4 percentage points to US economic growth this year, as reported by BNN Bloomberg.
The US economy had shrunk at an annual rate of 0.3 percent in the first quarter.
Goldman Sachs revised its US recession probability downward to 35 percent from 45 percent and raised its growth forecast, as cited by The Wall Street Journal.
Shares of companies heavily affected by tariffs rallied.
As per BNN Bloomberg, Lululemon jumped 8.7 percent, Nike rose 7.3 percent, and Best Buy climbed 6.6 percent. Amazon advanced 8.1 percent.
Travel stocks also saw gains, with Carnival up 9.6 percent and Delta Air Lines up 5.8 percent.
Small-cap stocks in the Russell 2000 index rose 3.4 percent, reflecting improved sentiment among domestically focused companies.
Investor expectations for interest rate cuts also shifted.
The 10-year Treasury yield rose to 4.47 percent from 4.37 percent, and the two-year yield increased to 4.00 percent from 3.88 percent.
According to data from CME Group, many traders now expect only two rate cuts this year from the Federal Reserve.
The US dollar appreciated against the euro, yen, and Swiss franc, while crude oil prices rose due to expectations of stronger fuel demand amid reduced tariff pressure.
Gold prices fell as investors showed less interest in safe-haven assets.
According to the US Treasury, customs duty collections rose by US$7.6bn in April compared to the previous month, reflecting earlier tariff-driven revenue increases, as reported by The Wall Street Journal.
However, the 90-day reprieve is expected to help businesses plan for key retail periods.
Carol Schleif, chief market strategist at BMO Private Wealth, said the pause would allow suppliers and retailers to “ensure that shelves are stocked for the all important back-to-school and holiday shopping seasons,” according to BNN Bloomberg.
While the market rally was broad, The Wall Street Journal noted that major challenges remain in the negotiations.
Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said there is “no reason to believe that this will be anything other than a slow process.”
Global equity markets also rose, though to a lesser extent than the US.
European and Asian indexes ended higher, according to BNN Bloomberg.
According to CNBC, futures activity overnight showed only slight movement ahead of Tuesday’s consumer price index release.
Analysts expect US inflation to remain steady at 2.4 percent annually, with core inflation holding at 2.8 percent.
Brent Schutte of Northwestern Mutual Wealth Management said they would assess whether March’s slower price increases persisted or whether recent business cost pressures had begun affecting consumers.
