Major US Stock Indexes Surge After US-China Tariff Agreement

The S&P 500 Index ($SPX) (SPY) closed up +3.26% on Monday, while the Dow Jones Industrials Index ($DOWI) (DIA) increased by +2.81%. The Nasdaq 100 Index ($IUXX) (QQQ) rose +4.02%. Additionally, June E-mini S&P futures (ESM25) climbed +3.32%, and June E-mini Nasdaq futures (NQM25) gained +4.03%.

Market Rally Driven by Trade War Developments

U.S. stock indexes experienced a significant rally on Monday. The S&P 500 and Nasdaq 100 reached their highest levels in two and a quarter months, while the Dow Jones Industrials hit a one and a half month high. This uptick in asset markets followed an announcement from the U.S. and China regarding a temporary tariff reduction aimed at de-escalating their ongoing trade war. Risk-on sentiment blossomed after Treasury Secretary Bessent described the trade discussions as “very robust and productive.”

Details of the Tariff Agreement

Under the new agreement, the U.S. will reduce its tariffs on Chinese goods from 145% to 30%, while China will lower its tariffs from 125% to 10% for a three-month period. Bessent indicated that neither country intends to “decouple,” suggesting that further negotiations could lead to “purchasing agreements” from China.

Geopolitical Factors Supporting Stock Gains

Additionally, easing geopolitical tensions, marked by a ceasefire agreement between India and Pakistan, contributed to the positive market sentiment. Ukrainian President Zelenskiy announced plans to meet with Russian President Putin in Istanbul for direct negotiations, which further bolstered investor confidence.

Fed Comments Raise Concerns

However, comments from Fed Governor Kugler dampened the stock market’s enthusiasm. She warned that U.S. tariff policies could lead to increased inflation and hinder economic growth, despite the announced tariff reductions. Kugler stressed that these policies might significantly impact productivity as businesses may reduce investments and pursue less efficient alternatives to navigate these tariffs.

Upcoming Economic Indicators

This week, market attention will focus on the developing tariff news and potential future trade agreements. On Tuesday, the April Consumer Price Index (CPI) is expected to rise by +0.3% month-on-month and +2.4% year-on-year. Excluding food and energy, a monthly increase of +0.3% and a yearly increase of +2.8% are anticipated. On Thursday, April retail sales are forecasted to increase by +0.1% month-on-month, and +0.3% month-on-month for retail sales excluding autos. The April Producer Price Index (PPI) is expected to see a +0.2% increase month-on-month and a +2.5% increase year-on-year. Also on Thursday, manufacturing production is predicted to decrease by 0.4% month-on-month. Friday will bring expectations of a +3.1% increase in April housing starts to 1.365 million, while April building permits are predicted to drop by 1.2% month-on-month to 1.450 million. The preliminary May University of Michigan U.S. consumer sentiment index is anticipated to rise by +1.1 to 53.3.

Market Predictions for Interest Rates

Currently, markets are estimating only an 11% chance of a -25 basis point rate cut following the Federal Open Market Committee (FOMC) meeting on June 17-18.

Ongoing Earnings Reports

The Q1 earnings reporting season is still underway. According to data compiled by Bloomberg Intelligence, the consensus expectation for year-over-year earnings growth of +6.7% for S&P 500 companies has declined from earlier predictions of +11.1% in November. As of now, 78% of the 412 companies in the S&P 500 that have reported earnings exceeded estimates. Full-year 2025 corporate profits for the S&P 500 are projected to rise by +9.4%, a reduction from an earlier forecast of +12.5% in January.

International Market Performance

International markets also showed positive movement on Monday. The Euro Stoxx 50 reached a one and a half month high, closing up +1.56%. China’s Shanghai Composite rose to a six-week high, closing up +0.82%, while Japan’s Nikkei 225 also increased, closing up +0.38%.

Bond Market Movements

In the bond market, June 10-year Treasury notes (ZNM25) closed down -21 ticks, with the yield on 10-year T-notes increasing by +7.8 basis points to 4.571%. The easing trade tensions contributed to a drop in demand for safe-haven T-notes as global equity markets rallied. Furthermore, supply pressures led bond dealers to short T-notes in anticipation of nearly $19 billion in investment-grade bonds being offered by 16 companies. Hawkish commentary from Fed Governor Kugler also weighed on T-note prices.

European government bond yields rose, with the 10-year German bund climbing to a one-month high of 2.650%, finishing up +8.6 basis points at 2.648%. The 10-year UK gilt yield increased to a three and a half week high of 4.655%, ending up +7.5 basis points at 4.643%.

ECB Rate Cut Expectations

Comments from ECB Governing Council member Kazaks suggested a strong possibility for a rate cut from the ECB in June, as current data appears to support this action. Swaps reflect an 83% probability for a -25 basis point rate cut at the ECB’s policy meeting on June 5.

Individual Stock Highlights

Monday saw substantial gains for major U.S. stocks, especially those known as the Magnificent Seven. Amazon.com (AMZN) surged over +8%, while Meta Platforms (META) gained more than +7%. Apple (AAPL) and Tesla (TSLA) also saw increases of more than +6%, and Nvidia (NVDA) closed up more than +5%. Alphabet (GOOGL) and Microsoft (MSFT) increased by over +3% and +2%, respectively.

The semiconductor sector thrived amid reduced trade tensions, with stocks like Microchip Technology (MCHP) rising over +10% and Lam Research (LRCX) increasing more than +9%. Other chipmakers like ON Semiconductor (ON) and KLA Corp (KLAC) also reported gains exceeding +8%.

Travel and cruise stocks were another beneficiary of the day’s optimism, with Carnival (CCL) closing up more than +9% and Norwegian Cruise Line Holdings (NCLH) rising over +8%. Other travel-related stocks also performed well, experiencing gains of +6% or more.

Trucking stocks enjoyed substantial increases as well. XPO Inc (XPO) surged over +14%, and Saia Inc (SAIA) closed up more than +12%. Other major trucking companies such as Old Dominion Freight Line (ODFL) and JB Hunt Transport Services (JBHT) followed suit, each gaining over +10%.

Energy stocks rose alongside WTI crude prices, which increased by over +1% to reach a two-week high. Phillips 66 (PSX) closed up +7%, and Valero Energy (VLO) increased by more than +6%.