Wall Street bets the worst of Trump's trade war is behind it
Tuesday's rally came after the S&P 500 finished its worst week since the early-April Trump tariff announcements.
Wall Street is betting that the worst of President Trump's trade war is in the rearview mirror.
The latest example came Tuesday, when news of easing trade tensions between the U.S. and the EU powered a 2% increase in the S&P 500. It was the largest single-day gain since May 12, when a rollback of tariffs between the U.S. and China spurred an even larger market rally.
While corporate earnings and bond-market jitters have prompted stock swings in recent weeks, trade policy remains the key driver of day-to-day market action. Investors have eagerly greeted any signs of easing tensions by driving markets higher, hopeful that the U.S. will eventually be able to strike deals with little lasting damage to the economy or corporate profits.
Few think the trade tensions have dissipated, or won't spark near-term stock declines going forward. But many said the worst fears of U.S. restrictions permanently reordering global trade have moderated, and the economic blow is unlikely to be as damaging as it appeared when Trump announced sweeping tariffs on April 2.
'The market is relieved—for now—that they can ignore the latest tariff threat," said Eric Sterner, chief investment officer at Apollon Wealth Management. 'We just need to get past this uncertainty so companies and consumers can plan ahead."
Tuesday's bounce came just days after the S&P finished its worst week since the original Trump tariff announcements in early April. On Friday, Trump threatened to impose a 50% rate on the European Union within days and warned Apple that foreign-made iPhones could face significant levies. That helped push major indexes into the red by more than 2% for the week.
Then, after a weekend phone call with European Commission President Ursula von der Leyen, Trump said he would delay the introduction of new EU tariffs until July 9. The EU said it would fast-track talks with the U.S.; the president posted on social media that the EU had called to set the date.
Markets reacted swiftly to the news: The Dow Jones Industrial Average climbed 741 points, or 1.8%. The Nasdaq Composite led gains, jumping 2.5%. Benchmark 10-year Treasury yields dropped to 4.432%, driven lower by a global bond rally, while the dollar strengthened.
The on-again, off-again dance of tariff talks and tentative deals has kept investors on edge, with hopes now rising that last week's threats were more a negotiating tactic than a sign of a renewed trade war. The Trump administration's 90-day pause on global tariffs is set to expire in July.
Investors were also buoyed by a pair of upbeat economic-data reports Tuesday: Consumer confidence rebounded in May, the Conference Board reported, and demand for durable goods dropped less sharply in April than economists expected.
In the coming days, a cluster of S&P 500 companies are set to report earnings, including artificial-intelligence heavyweight Nvidia on Wednesday. Investors will be parsing reports and remarks from company leaders for clues on the impact of trade tensions.
Major indexes have recovered losses since the president's unveiling of sweeping new tariffs on April 2 sent stocks tumbling. Still, some money managers are growing concerned that the optimism fuelled by the market's rebound is now too widespread.
Stock valuations are still relatively high, by historical standards: Companies in the S&P 500 are trading at 21 times their expected earnings over the next 12 months, as of Friday's close, versus a 10-year average of 18.7 times.
Some investors say high equity valuations are at odds with a number of uncertainties still clouding analysts' outlook, primarily the yet-to-be-determined fallout of the Trump administration's approach to trade.
'Those aren't matching right now," said Keith Buchanan, senior portfolio manager at Atlanta-based Globalt Investments. 'Sentiment has bounced back—it may prove to be somewhat premature."
Write to Hannah Erin Lang at hannaherin.lang@wsj.com
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