Market Commentary: Equity Rebound and the Importance of Staying Invested
Trade Truce Sparks an Equity Rebound
Global equity markets have staged an impressive rebound since bottoming on April 8. At that time, the Nasdaq 100 had fallen into a bear market, declining more than 20% from its high in mid-February. By mid-May, the Nasdaq 100 had erased its year-to-date decline and even turned positive. The S&P 500 likewise rallied from the April lows, led by easing fears of a worst-case trade war outcome. In fact, U.S. stocks rallied over 3% on some days when news broke that the U.S. and China were dialing back their tariff war.
The primary catalyst for this resurgence has been a thaw in U.S.-China trade tensions. After a tense period of escalating tariffs that rattled markets, negotiators from Washington and Beijing reached an unexpected 90-day trade truce last week. In a joint statement, the U.S. agreed to slash tariffs on Chinese imports to 30% from a prior effective rate of 145%, while China cut its duties on U.S. goods to 10% (down from about 125%).
These reductions were far larger than investors had anticipated, amounting to a significant de-escalation of the trade war, even if temporary. Tariffs that were at economically prohibitive levels are now lowered to something more manageable for the next three months. Markets greeted the announcement as a “better than expected” outcome that removes some of the recent uncertainty.
The S&P 500 immediately moved above its 200-day moving average on the news, the Dow Jones Industrial Average jumped over 1,000 points, and mega-cap tech stocks surged nearly 6% in a single day. Investors were relieved to see the tariff war’s de-escalation, as it suggested the global economy may avoid a deeper downturn.
Along with the tariff rollbacks, officials provided insight into the agreement’s terms and implications. The tariff pause lasts for 90 days, during which the two sides will negotiate a more comprehensive deal. While 30% U.S. tariffs and 10% Chinese tariffs are still historically high, this truce marks a meaningful step back from an “all-out tariff war” and is being treated like a partial lifting of a trade embargo.
Analysts note that trade between the world’s two largest economies should open up more in the short term, relieving supply bottlenecks and boosting shipping volumes that had slumped after the April tariff hikes.
However, companies are not likely to dramatically change their supply chains or investment plans yet, as this truce is temporary and tariffs remain elevated, keeping some pressure on costs and prices. However, the easing of trade tensions has clearly lowered uncertainty and lifted market sentiment. Investors are now hoping this initial truce can be extended or made permanent, but even if not, it provides time for businesses to adapt and plan for contingencies should negotiations stagnate.
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The NASDAQ 100 Index is an unmanaged group of the 100 biggest companies listed on the NASDAQ Composite Index. The list is updated quarterly and companies on this Index are typically representative of technology-related industries, such as computer hardware and software products, telecommunications, biotechnology and retail/wholesale trade.
*The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
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