With Wall Street embracing another rally, some financial markets are trading like Donald Trump’s “Liberation Day” shock never happened.

The S&P 500 jumped 3.3%, and the Nasdaq 100 Index pushed back into a bull market. The dollar rose over 1% for its best one-day move since Nov. 6, in the immediate wake of Trump’s victory in the presidential election. Treasuries fell, while traders pared back their expectations for US interest-rate cuts this year.

The easing of trade tensions between the US and China gives investors their clearest indication yet that the Trump administration is taking a softer approach to the clashes that upended global markets just a few weeks ago. With hopes riding high that the US economy can avoid a recession, traders now expect the Federal Reserve to lower rates just twice in 2025.

“People are taking off some of the recession trades they had,” said Mark Dowding, chief investment officer of BlueBay Fixed Income. “This all makes sense as there had been this legitimate fear that we could end up with some sort of cliff-edge event, where the US economy really hit the buffers hard with trade coming to a bit of a sudden halt. And that has now been pushed back.”

Big tech stocks, which had been hammered in the selloff, led the advance. Meanwhile, safe haven assets dropped, with gold, the Japanese yen and the Swiss franc sinking in unison. The euro fell, on track for its worst day this year.

Swaps tied to Fed meetings now favor a quarter-point reduction in September. Last week, they indicated three cuts this year, with a change likely as soon as July.

What Bloomberg’s Strategists Say...

“Were the last six weeks just some sort of nightmare? The weekend suspension of most of the tariffs between the US and China has suddenly left trade policy looking a lot more like the optimistic expectations from the beginning of April.”

— Cameron Crise, Macro Strategist

Some investors were wary about the lack of detail in Monday’s announcement and the risk of another flare-up between Beijing and Washington. Trump said he would likely speak to Chinese leader Xi Jinping later this week.

While the two countries have three months to work through their differences, that’s not a lot of time to negotiate a complex trade dispute. It’s also unclear what the goal is at the end of the cooling-off period. Asked what would happen at the end of 90 days to avoid tariffs ratcheting back up, Treasury Secretary Scott Bessent indicated there’s a chance to extend the truce further.

In the meantime, Chinese exporters will likely use the time to ship even more products to the US or through other countries, exacerbating imbalances.

It’s unlikely that US equities will return to their record highs anytime soon, said Roberto Scholtes, head of strategy at Singular Bank. He cautioned that even if an agreement is reached, companies will suffer the economic damage from the confusion and uncertainty of US economic policy.

“We took advantage and bought the dips,” he said. “Now we’re on hold, but weighing whether sell the rally.”

A Bloomberg gauge of the dollar closed Monday up 1%, its best performance since Trump’s victory in the presidential election.

At Wells Fargo, strategists including Erik Nelson and Aroop Chatterjee noted that a “shift higher in US monetary policy expectations will aid dollar strength alongside stretched dollar short positioning,” they wrote in a Monday note to clients.

Trade pressures are already starting to hit businesses, with companies from United Parcel Service Inc. to Ford Motor Co. to Mattel Inc. withdrawing guidance, citing tariff uncertainty that’s getting too hard to navigate.

The average company in the S&P 500 made 6.1% of its revenue from selling goods in China or to Chinese companies in 2024, according to an analysis from Bloomberg Intelligence.

Other investors said the shift in sentiment will be enough to drive a recovery in global markets.

For equity investors, “there is no more dip to buy, so if you were not invested, it’s really hard to go in now,” said David Kruk, head of trading at La Financiere de L’Echiquier. “It’s a real pain trade for those who missed the rebound.”