US stocks experienced a significant rise on Monday after President Donald Trump's leading trade representatives achieved an unexpectedly major reduction in trade tensions with China over the weekend, resulting in significantly lower tariffs that some economists believe could prevent a US recession.
The Dow ended the day up by 1,161 points, a 2.81% increase. The S&P 500 rose by 3.26%, while the tech-heavy Nasdaq Composite jumped 4.35%. Each of the three major indexes recorded their most substantial single-day increases in over a month.
“The sharp market rally today reflects the unexpectedly positive tariff news,” noted Keith Lerner, chief market strategist at Truist Advisory Services, in a Monday report. “Many investors were not positioned for this outcome, resulting in a considerable market surge.”
Having entered a bear market on April 4, the Nasdaq finished the day more than 20% above its lowest point this year—thus exiting its bear market and signaling the beginning of a new bull market. (A rise of 20% from a recent low typically indicates the onset of a bull market.)
In recent weeks, the Nasdaq has made a rapid recovery, although it remains down approximately 3.1% for the year.
US markets celebrated a reduction in trade tensions.
On Monday, American stocks completely recovered from the downturn they faced following Trump’s April 2 “Liberation Day” trade announcement, which imposed a 10% tariff on virtually all imports to the United States and raised tariffs on numerous countries significantly. Shortly after these tariffs were implemented, Trump suspended most of them but increased import duties on China to as high as 145% for many Chinese goods.
In response, China raised tariffs on American products to 125%. This exchange of tariffs had effectively halted commerce between the two nations, posing risks of serious price increases and shortages.
Both Trump and Treasury Secretary Scott Bessent had indicated in recent weeks that tariffs on China had reached unsustainable levels and that a reconciliation was needed. However, few expected the discussions held in Geneva over the weekend between Bessent, US Trade Representative Jamieson Greer, and their Chinese counterparts would yield such significant results.
The two parties came to an agreement to reduce tariffs by 115 percentage points, which still means the levies are notably higher than they were before Trump took office in January, yet much reduced from the historic levels of the past month that had alarmed American businesses, consumers, economists, and investors.
Jeff Buchbinder, chief equity strategist at LPL Financial, remarked in an email, “No one had these low China tariff rates on their bingo cards. This is a big positive surprise.”
Another critical aspect of the discussions: Bessent mentioned that the US and China established a mechanism to prevent future tariff increases against one another, implying that the most challenging phase of the trade war might be behind us.
During a press conference on Monday, Trump echoed this sentiment. When questioned about whether tariffs on Chinese exports would revert to 145% in case trade negotiations hit a standstill, Trump replied, “No.”
“No, but they would increase significantly beyond the 30% rate during the pause,” he stated. “Nonetheless, I believe a deal is imminent.”
The easing of tariffs between the US and China has lowered the chances of a global recession, stated Henry Allen, a strategist at Deutsche Bank, in a note addressed to investors on Monday morning.
“The market’s stability is making a recession less probable by improving financial conditions,” he mentioned. “Policymakers are also keen to avoid a downturn or market instability, as evidenced by the 90-day extension of the reciprocal tariffs.”
As a result, Wall Street reacted positively on Monday morning. Investors displayed a higher willingness to take risks with assets, particularly stocks. The US dollar increased by 1.4% against a range of currencies. US oil, which had dropped due to concerns about a demand decline resulting from a tariff-driven global recession, climbed 1.52% to $61.95 per barrel. Brent crude, the global benchmark, rose 1.64% to $64.96 per barrel.
Conversely, investors offloaded safe-haven assets, leading to a 2.7% drop in gold. US Treasuries also experienced a decrease, pushing the 10-year yield back above 4.45%. Prices and yields for bonds move in opposite directions. The Japanese yen fell by 2% against the dollar.
The CBOE Volatility Index, which gauges fear on Wall Street, plummeted over 15% to its lowest point since late March. According to CNN’s Fear and Greed index, “greed” was the prevailing sentiment in the markets. Earlier this year, the index had firmly remained in “extreme fear” and “fear” before shifting to “greed” this month.
“The unexpected reduction in tariffs between the US and China, though temporary, along with a framework for ongoing discussions, is precisely what the stock market had been longing to see,” remarked Carol Schleif, chief market strategist at BMO Private Wealth.
Tech stocks were notable beneficiaries on Monday: Despite a recent exemption for hardware from tariffs on China, the tech sector had been particularly affected by the trade conflict due to the close ties between American and Chinese technology industries. Apple (AAPL) increased by 6.3%, Tesla (TSLA) rose by 6.75%, Nvidia (NVDA) saw a 5.4% increase, Amazon (AMZN) went up by 8.1%, and Intel (INTC) rose by 3.55%.
Shares of luxury goods manufacturers, which had previously declined in recent months, experienced a significant rebound: Hermes gained 3.5%, Burberry increased by 3.67%, and LVMH surged by 7%.
Automotive companies also experienced gains: Stellantis (STLA), the maker of Jeep and Chrysler, rose by 6.5%, General Motors (GM) increased by 4.4%, and Ford (F) saw a 2.6% rise.
“The risk-on atmosphere in the markets indicates that investors did not anticipate such a favorable outcome arriving so soon,” stated Ulrike Hoffmann-Burchardi, chief investment officer for global equities at UBS Global Wealth Management, in a note on Monday. “Investors will now be looking for indications that this temporary solution can evolve into a more permanent agreement.”
A challenging moment for a trade war
On Monday morning, Bessent described the trade war de-escalation he helped negotiate with his Chinese counterparts over the weekend as rigorous yet respectful.
“We were resolute, and we made progress,” Bessent told CNBC from Geneva. “We aimed to pinpoint mutual interests. We arrived with a list of issues we wanted to address, and I believe we accomplished that effectively.”
Bessent emphasized that the United States was negotiating from a position of strength since China relies on the US to purchase its products more than the US needs China's goods exports. China’s economy is in a precarious state, facing a housing crisis and a developing debt crisis. With decreased consumer spending and reduced factory output, this is an unfavorable time for China to be engaged in a damaging trade war.
“I observed the situation in the Chinese economy. We can see the flow of shipments to the US,” Bessent said. “Once more, we are the country with the trade deficit. Historically, a deficit position gives a country a stronger negotiating edge.”
However, as the saying goes, there are no winners in a trade war. US consumer confidence has plummeted recently, as inflation-weary Americans became increasingly concerned about the potential for rising prices and shortages. Shipments from China to the US have nearly come to a standstill, unsettling corporate America. Consequently, investors have prepared for a recession, as economists warn that the US economy could suffer particularly due to the trade war.
The easing of tensions, while welcomed by Wall Street, consumers, and businesses, marks a significant change for a Trump administration that had recently asserted the trade conflict with China was essential for restoring America’s lost manufacturing strength. Just last week, Trump claimed that having no trade with China placed America in a more advantageous position since it meant the country was no longer "losing money" to the Chinese.
Bessent noted that the agreement did not signify a substantial change in policy, however.
“This is merely a temporary halt,” he stated. “The tariff rate for China on April 2 was 34%, and we have reduced that from 34% to 10%.”
As part of the next phase in negotiations, the US will aim to broaden its supply chains for what Bessent referred to as “strategic necessities,” aiming to decrease its dependence on China for essential items like critical pharmaceuticals, semiconductor chips, and steel.
“We want to achieve a decoupling for strategic necessities, which we were unable to accomplish during Covid,” he stated. “We have come to understand that efficient supply chains do not equate to resilient supply chains. Therefore, we will develop our own.”
He also mentioned that the US would pursue a more equitable approach to international trade. Bessent indicated that the Trump administration intends to dismantle “harmful, non-tariff trade obstacles that hinder American businesses trying to operate” in other nations.
A “historic fresh start”
The reduction of tensions in the trade conflict with China marks a significant victory for the US economy and American consumers, Kevin Hassett, the Director of the National Economic Council of the United States, stated during an interview with CNN’s Kate Bolduan on Monday.
Hassett noted that Trump achieved important concessions from both China and the United Kingdom in their recently announced trade negotiation frameworks, particularly by gaining access for American beef into the UK market and possibly reducing some barriers China had imposed on American businesses attempting to operate there. He implied that the agreement finalized over the weekend should mitigate future supply chain disruptions originating from China.
“Much of that has been resolved now — the risk of supply interruptions from China,” Hassett remarked. “I believe this represents a truly significant fresh start in the US-China relationship.”
However, Hassett clarified that the recent developments do not contradict Trump’s earlier policies.
“The essential point is that President Trump was indicating that if we don't achieve a favorable deal, we’ll manage,” Hassett explained. “The reality is that we were barely selling to China. We are importing a significant amount from China, but we could source those products from other nations or produce them domestically.”
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