By Jack Pitcher

Stocks are surging, but Wall Street isn't ready to declare victory in the trade war just yet.

A surprise de-escalation between the U.S. and China drove the Dow Jones Industrial Average up more than 1,100 points and the Nasdaq Composite into a new bull market, a gain of more than 20% from its April low. Big tech stocks climbed, along with shares of shippers and multinational businesses. Amazon.com surged 8.1%. Nike climbed 7.3%.

The Dow industrials ended the day with a gain of 2.8% and settled at 42410, above where they stood on April 2, when President Trump announced sweeping tariffs on goods from around the world. The tech-heavy Nasdaq was 4.3% higher, and the S&P 500 added 3.3%.

But many investors remained cautious. Some noted tariffs overall remain at their highest levels in decades, far higher than expected at the start of Trump's term. Others said the on-again, off-again trade restrictions had already disrupted business plans and supply chains, damaging the economy and corporate profits.

"No one had these low China tariff rates on their bingo cards," said Jeff Buchbinder, chief equity strategist at LPL Financial. "Risk remains that tariffs go back up from current levels as the pauses end, though taking worst-case scenarios off the table is reassuring."

Stocks had already posted big gains in the weeks since the White House backed off of its most extreme levies on other countries. Despite some of the most volatile stock and bond trading in recent memory in April, major benchmarks now stand close to where they started the year. The S&P 500 is down less than 1% in 2025, and the 10-year Treasury yield is down around one-tenth of a percentage point.

But few analysts expected such a major reset of the tone between the world's two largest economies, after Trump said last week that an "80% tariff on China sounded about right."

Instead, the U.S.'s reciprocal tariff on China will fall to 10% from 125% over the next 90 days while trade talks continue. A separate 20% tariff related to China's alleged role in the fentanyl crisis remains.

That was enough to fuel a broad rally on Monday. Shares of companies that had been punished by the trade war, including Apple and Tesla, advanced. The so-called Magnificent Seven tech firms added a collective $830.9 billion in market value, according to Dow Jones Market Data. Investors drove up every S&P 500 sector except utilities -- reversing a recent rush into stocks that are perceived to be resistant to slowing growth.

The dollar jumped, bond yields rose, and investors bet on a slower pace of interest-rate cuts from the Federal Reserve later this year, a sign some are betting the U.S. could avoid a sharp slowdown.

Seema Shah, chief global strategist at Principal Asset Management, said the lower tariff rates should enable an immediate resumption of trade between the U.S. and China, after data showed a collapse in container traffic between the two countries. Shares of trucking companies Old Dominion Freight Line and J.B. Hunt Transport Services both rose more than 9% on Monday.

"Of all the trade deals, this is the one that really matters for the U.S. economy," said Shah. "The tariff rate is still elevated but it brings down the overall U.S. average tariff rate to around 12%, indicating a much smaller negative impact on the economy."

Many still expect economic consequences. Backward-looking economic data have shown little evidence of a slowdown. But businesses both large and small have reported taking a hit, and are struggling to make plans against a backdrop of rapidly shifting trade policy.

"The agreement constitutes a 90-day delay rather than an indefinite removal, which should keep uncertainty high for both investors and businesses on the end point for tariffs," Goldman Sachs analysts wrote to clients on Monday.

Adding to the uncertainty, House Republicans unveiled a new plan on Monday to extend Trump's 2017 tax cuts. Ford O'Neill, who oversees more than $250 billion in fixed-income assets as a portfolio manager at Fidelity Investments, said the combination makes forecasting especially difficult.

"When you think about rewriting trade policies and rewriting tax policies, the outcomes are so vast it's hard to have a strong commitment on what the economy will do," O'Neill said. "Our expectation is recession odds are probably now lower."

Another key question is whether the high tariffs have already caused damage that will cascade through the economy. Some have compared the recent trade disruptions to those that took place during the Covid pandemic, which took years to unsnarl.

"We have yet to witness the economic costs of the tariffs that have been in place," said Mark Malek, chief investment officer at Siebert Financial.

(END) Dow Jones Newswires

May 12, 2025 16:44 ET (20:44 GMT)

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