Wall Street signals trade war relief

[UNITED STATES] Wall Street staged a powerful rally this week as investors bet that the most punishing phase of President Donald Trump’s global trade war has passed, following a series of tariff reprieves and signs of progress in negotiations with key U.S. trading partners. The S&P 500 soared 2% on Tuesday, marking its largest single-day gain in over two weeks, while the Dow Jones Industrial Average jumped more than 700 points, buoyed by optimism that the risk of further escalation is receding.

A Volatile Spring: From Market Panic to Relief

The optimism on Wall Street comes after a tumultuous spring marked by dramatic swings in global markets. In early April, President Trump stunned investors by announcing sweeping tariffs on nearly all U.S. imports, triggering a historic selloff that erased trillions from stock portfolios and retirement accounts. The S&P 500 plunged more than 10% in a matter of days, entering correction territory, while the Dow Jones lost over 4,000 points in just two sessions.

The tariffs, which peaked at an average effective rate of 27%—the highest in over a century—sparked fears of a global recession and prompted retaliatory measures from China, Canada, and the European Union. Technology, automotive, and retail sectors were hit especially hard, with companies like Nvidia and Apple warning of potential losses due to disrupted supply chains and rising costs.

The Turning Point: Tariff Pause and Negotiation Hopes

The tide began to turn on April 9, when President Trump announced a 90-day pause on most of the newly implemented tariffs, excluding those on China. This move, reportedly made after intense lobbying from Wall Street executives and Treasury officials, led to a record-setting 9.5% surge in the S&P 500—the largest one-day gain since the 2008 financial crisis. The administration framed the pause as an opportunity for “bespoke negotiations” with major trading partners, and markets responded with relief.

Further easing came in late May, as Trump withdrew threats to impose 50% tariffs on European Union imports and signaled a willingness to fast-track trade talks with both the EU and China. The S&P 500 and Nasdaq each climbed more than 2% on the news, while large-cap stocks like Apple, Alphabet, and Tesla rallied in premarket trading.

“Markets are all about expectations, and relative to expectations, the short-term news is better,” said Keith Lerner, co-chief investment officer at Truist.

Lingering Uncertainty and Cautious Optimism

Despite the recent rally, analysts warn that the outlook remains far from certain. The baseline 10% tariff on all imports remains in effect, and negotiations with China and the EU are ongoing, with no guarantees of a lasting resolution. The Federal Reserve and the OECD have downgraded U.S. growth projections, citing the lingering drag from tariffs and the risk of renewed escalation.

Business leaders continue to voice concerns about the unpredictability of U.S. trade policy. Investment plans remain on hold in many sectors, and global investors are reassessing their exposure to U.S. assets, with some surveys reporting record intentions to reduce American stock holdings.

“What was valid yesterday is no longer applicable today; I cannot predict what will happen tomorrow,” said Jean-Christophe Babin, CEO of Bulgari, reflecting the prevailing uncertainty.

Key Market Reactions

Stock Market Recovery: The S&P 500 has rebounded to levels seen before the April tariff shock, though it remains 7% below its all-time high.

Bond and Currency Markets: The initial tariff announcements triggered a rare selloff in both U.S. Treasurys and the dollar, undermining their traditional safe-haven status.

Sector Winners and Losers: Value stocks and defensive sectors like healthcare outperformed during the volatility, while technology and consumer discretionary shares lagged.

The Road Ahead: What Investors Are Watching

Negotiation Deadlines: The White House has set a July 9 deadline for trade talks with the EU, and a 90-day window for broader tariff negotiations remains in effect.

Tariff Policy: While some tariffs have been paused or reduced, the 10% universal tariff and sector-specific levies on steel, aluminum, and autos persist.

Economic Data: Investors are closely monitoring job growth, consumer confidence, and corporate earnings for signs of lasting damage or resilience.

Multiple Viewpoints

Administration Perspective: Trump officials argue that the tariffs are a necessary tool to rebalance trade and support domestic manufacturing, promising long-term gains despite short-term pain.

Wall Street’s Take: Many investors remain skeptical, fearing that continued uncertainty and protectionism could undermine America’s economic alliances and global market leadership.

Global Response: Retaliatory tariffs and shifting supply chains have already begun to reshape global trade flows, with mixed effects on different regions and industries.

Wall Street’s recent surge reflects a collective hope that the worst of Trump’s trade war is over. Yet, with key tariffs still in place and negotiations far from settled, the path forward remains fraught with uncertainty. Investors, business leaders, and policymakers alike are bracing for further twists as the world’s largest economy navigates a new era of trade confrontation and market volatility.