Wall Street finishes up on profits, reducing tariff tension prospects

[UNITED STATES] U.S. stocks staged a sharp rebound Tuesday, buoyed by a flurry of upbeat corporate earnings and renewed optimism over easing U.S.-China trade tensions, drawing investors back into the market after a rocky stretch.

The rally comes on the heels of heightened market turbulence, spurred by geopolitical uncertainties ranging from rising Middle East tensions to mixed inflation data. Despite the Federal Reserve’s continued cautious stance on interest rate cuts, Tuesday’s gains point to renewed investor confidence that the worst of the recent sell-off may have passed. Analysts highlighted that the S&P 500’s sharp recovery fits historical patterns of strong comebacks during earnings season following steep declines.

Momentum extended into after-hours trading after President Donald Trump signaled he had no intention of removing Federal Reserve Chair Jerome Powell, dialing back earlier confrontational rhetoric.

Investors had been wary of potential political meddling in monetary policy amid Trump's persistent criticism of Powell’s rate decisions. The president’s remarks appeared to ease concerns over the Fed’s independence, seen as crucial to market stability. “This is a relief rally,” said Diane Swonk, chief economist at KPMG. “The Fed’s credibility is critical, and any threat to that would have prolonged uncertainty.”

S&P 500 futures jumped nearly 2% after Trump’s comments, with heavyweights Amazon.com and Nvidia climbing 3% each and Apple rising 2% in post-market trading. During regular trading, all three major U.S. indexes soared more than 2.5%, as market participants shrugged off political tensions and focused on positive earnings momentum.

Adding to the upbeat tone, Treasury yields retreated, with the 10-year note dipping below 4.5% for the first time in two weeks. Falling yields tend to favor equities, especially high-growth tech stocks that led Tuesday’s surge. “The bond market is finally giving stocks some breathing room,” said David Bahnsen, chief investment officer at The Bahnsen Group. “This could mark the beginning of a broader risk-on rally if earnings remain strong.”

Despite recent setbacks driven by erratic White House trade policy, the S&P 500 ended the day about 14% below its February 19 peak. Treasury Secretary Scott Bessent noted that while trade talks with Beijing will remain challenging, he expects a gradual de-escalation in tensions.

“The roller coaster continues,” said Ryan Detrick, chief market strategist at Carson Group. “Bessent’s comments helped thaw some of the tension between the U.S. and China, fueling market optimism.”

Detrick added that the administration is beginning to grasp the market-damaging effects of tariff uncertainty and may aim for more constructive trade developments going forward. That uncertainty recently led the International Monetary Fund to lower its 2025 U.S. growth forecast to 1.8%, citing tariffs now at century-high levels.

Meanwhile, American corporations are still feeling the fallout from trade friction. A recent Business Roundtable survey found nearly 40% of CEOs have postponed investments due to tariff-related worries. While the tech sector continues to show resilience, industries like manufacturing and agriculture remain especially exposed to further disruptions. “The market is pricing in a truce, but not a full resolution,” cautioned Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

Earnings season continued to gain momentum, with 82 S&P 500 companies reporting as of Tuesday. Of those, 73% have exceeded analyst expectations, according to LSEG. Despite the strong showing, analysts now forecast S&P 500 earnings growth of 8.1% for the first quarter, down from an earlier projection of 12.2%, per LSEG data.

“Current earnings reflect solid fundamentals, which is not surprising,” said Bill Merz, head of Capital Market Research at U.S. Bank Wealth Management in Minneapolis. He noted investors are paying close attention to corporate guidance for insight into how firms plan to navigate tariff policy.

Shares of 3M Co. jumped 8.1% after posting stronger-than-expected first-quarter earnings, though the firm warned tariffs could impact its 2025 outlook. In contrast, Northrop Grumman slumped 12.7% following a sharp profit drop, while aerospace and defense giant RTX fell 9.8% after projecting an $850 million tariff-related hit to its annual earnings.

The Dow Jones Industrial Average surged 1,016.57 points, or 2.66%, to close at 39,186.98. The S&P 500 rose 129.56 points, or 2.51%, to 5,287.76, and the Nasdaq Composite gained 429.52 points, or 2.71%, to end at 16,300.42.

All 11 sectors of the S&P 500 finished higher, led by financials and consumer discretionary stocks. On the NYSE, advancing issues outpaced decliners by a ratio of 6.4 to 1. The exchange saw 50 new highs and 44 new lows. At the Nasdaq, 3,580 stocks advanced while 796 declined, with a 4.5 to 1 ratio of gainers to losers. The index recorded 31 new highs and 76 new lows. Trading volume across U.S. exchanges totaled 15.21 billion shares, below the 20-day average of 18.94 billion.