What Wall Street's brightest minds think about the US-China trade deal

Yahoo

13-05-2025

Investors have cheered the US-China trade talks, sending stocks soaring on Monday.
While the deal has removed some risks weighing on stocks, some say tariffs are still a threat.
Here's what some of Wall Street's top commentators have to say as US-China trade tensions cool.
The US-China trade deal gave markets a huge boost on Monday, but progress on tariffs over the weekend still leaves some risks to stocks and the economy intact, top Wall Street commentators say.
The US is set to lower the tariff rate on Chinese goods from 145% to 30%, while China plans to cut its tariff rate on US goods from 125% to 10% for 90 days as negotiations continue.
Investors, who had been closely watching for signs of easing in recent weeks, are relieved. Yet the reaction is varied among some of Wall Street's top voices, who see an improved outlook for the US economy but are still eyeing risks to the market ahead.
Here's what some of Wall Street's brightest minds have to say.
The trade deal isn't signaling an all clear for markets, Allianz's chief economic advisor said. That's partly because tariffs will still stoke inflationary pressures in the economy, even though a lower rate on imports will allow for some economic activity between the US and China, he said.
"It's not a straight line. And you're going to be really frustrated when you hear the opinion of economists like me," El-Erian said of his market outlook when speaking Monday with CNBC.
El-Erian said economic activity would likely be higher than expected for the next 90 days because of short-term optimism on the trade agreement. Still, he saw the Federal Reserve issuing fewer rate cuts in 2025 and pushing them further down the road as it monitors inflation.
"My own gut feeling is we will get some slowing in the economy. We will get some higher inflation. But most CEOs will remain in the wait-and-see," he said, adding that there was still uncertainty around the economic, political, and national security implications of the deal.
The Morgan Stanley chief investment officer said he believed stocks had already hit a "trough" after President Donald Trump's "Liberation Day" tariffs fueled a historic sell-off. He also doubled down on his forecast that the S&P 500 would reach 6,500 by the end of the year, a gain of about 12%.
Dialed-back tariffs could give the Fed more room to cut interest rates this year, Wilson added, a move that would boost risk assets like stocks.
"If tariffs aren't going to be as onerous, they can now start looking at this dual mandate again, and saying, 'Hey, the growth picture is maybe a little bit better, but if we're going to err on the side of policy, probably to help the growth side than maybe the inflation side, if the tariffs aren't going to be as bad,'" Wilson told CNBC.
He added that the risk of a recession had also "come down meaningfully," assuming that negotiations with China hold true. That, along with a weaker US dollar, brightens the outlook for corporate earnings.
"I feel better that the second half now, from a rated change standpoint, can be better than what people were expecting because the first half was actually worse than what people were expecting," Wilson said of his outlook on stocks.
Apollo's top economist said the trade agreement could easily boost the US economy's growth. That's because the trade deal has removed a "major tail risk" from the economy, Sløk said, referring to fears that trade between the US and China would shut off completely under the original tariffs.
The deal could cause consumers, corporations, and foreigners to regain confidence in the US economy and markets, which could provide a tailwind to growth.
Markets are starting to focus more on the impact of inflation stemming from tariffs. Traders are now pricing in two rate cuts for the year, down from three to four cuts they expected in the prior week, Sløk said. Still, investors appear confident that the more positive outlook for growth will outweigh the inflationary impact of tariffs, he said.
"So it's very clear that by removing this tail risk and the risk of a recession, we now have the markets saying, 'Well, maybe the growth outlook is not that bad.' And maybe therefore, yes, inflation will still go up, but if we still have that GDP growth is going to be still OK, at least for now, we will eventually get a tailwind as a result of removing this tail risk," he added.
Evercore's founder said the main issue with the trade deal is that the terms aren't final yet.
"It's encouraging. It's very encouraging. But it's preliminary," Altman told CNBC. "It's essentially a 90-day pause on the ultrahigh tariffs in order to negotiate to try to get a permanent framework, permanent tariff reduction framework, and other progress."
The US and China still have to negotiate on several "tough" issues, Altman said, pointing to the fact that many of China's products are heavily subsidized by the government. If the costs for those goods were "objectively set" for the US and European markets, prices in those nations could rise, he said.
Meanwhile, the overall US tariff rate is still sharply higher than it was before Trump's April 2 tariff announcement. Even considering the 90-day pause and framework for trade negotiations with China, the US's overall rate will likely be pushed up to about 14%, Altman estimated, up from about 3% to 4% during then-President Joe Biden's term.
"That will still be a drag, when we all know what tariffs do," he said. "As Chairman Powell said, they raise prices, reduce consumption, raise inflation."
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