US stocks surged on Monday after President Donald Trump’s top trade officials brokered a surprisingly dramatic de-escalation in trade tensions with China over the weekend, dropping tariffs to much lower levels, which some economists say could stave off a US recession.
The Dow closed higher by 1,161 points, or 2.81%. The broader S&P 500 gained 3.26%, and the tech-heavy Nasdaq Composite surged 4.35%. The three major indexes each posted their biggest single-day gains in over one month.
“The sharp market rally today reflects the unexpectedly positive tariff news,” said Keith Lerner, chief market strategist at Truist Advisory Services, in a Monday note. “Many investors were not positioned for this outcome, leading to a significant market surge.”
The Nasdaq, which had entered a bear market on April 4, closed up more than 20% from its lowest point this year — exiting its bear market and marking the start of a new bull market. (A rise of 20% from a recent low generally marks a bull market.)
It’s been a swift recovery in recent weeks for the Nasdaq, though the index is still down about 3.1% this year.
Markets cheer easing trade tensions
US stocks on Monday firmly erased all their losses since Trump’s April 2 “Liberation Day” trade announcement, which placed a 10% tariff on practically all goods coming into the United States and set significantly higher tariffs on dozens of countries. Trump paused most of those tariffs just days after they went into effect but jacked up import taxes on China — eventually to 145% on most Chinese imports.
In turn, China hiked tariffs on US goods to 125%. The tit-for-tat trade war had effectively stopped trade between the two countries, risking substantial price hikes and shortages.
Trump and Treasury Secretary Scott Bessent both had said in recent weeks that tariffs on China had grown unsustainably high and a détente was necessary. But few believed that the result of the discussions between Bessent, US Trade Representative Jamieson Greer and their Chinese counterparts in Geneva this weekend was going to be quite so significant.
Both sides agreed to axe tariffs by 115 percentage points, still leaving the levies considerably higher than where they were before Trump took office in January — but much, much lower than the historic level over the past month that deeply concerned American businesses, consumers, economists and investors.
“No one had these low China tariff rates on their bingo cards,” said Jeff Buchbinder, chief equity strategist at LPL Financial, in an email. “This is a big positive surprise.”
Another key element of the discussions: Bessent said the US and China had put in place a mechanism to avoid raising tariffs on each other again, suggesting that the worst of the trade war may be behind us.
Trump said as much during a Monday press conference. When asked if the tariffs on Chinese exports would snap back to 145% if there were to be an impasse on trade talks, Trump said, “No.”
“No, but they would go up substantially higher” than the 30% rate during the pause, he said. “I think you will have a deal, however.”
Traders work on the floor of the New York Stock Exchange on Monday. - Richard Drew/AP
The de-escalation of US-China tariffs further reduces global recession risks, Henry Allen, a strategist at Deutsche Bank, said in a note to investors Monday morning.
“The market’s resilience itself is making a recession less likely by easing financial conditions,” he wrote. “And policymakers don’t want a downturn or market turmoil either, as we saw with the 90-day extension to the reciprocal tariffs.”
As a result, Wall Street cheered Monday morning. Investors showed greater appetite for riskier assets, including stocks. The US dollar rose 1.4% against a basket of currencies. US oil, which had tumbled as investors feared a demand vacuum because of a tariff-induced global recession, surged 1.52% to $61.95 a barrel. Brent crude, the international benchmark, rose 1.64% to $64.96 a barrel.
By contrast, investors sold off save-haven assets, such as gold, which tumbled 2.7%. US Treasuries also fell, sending the 10-year yield back above 4.45%. Bond prices and yields trade in opposite directions. Japan’s yen fell 2% against the dollar.
The CBOE Volatility Index, Wall Street’s fear gauge, sank more than 15% to its lowest level since the end of March. “Greed” was the sentiment driving markets, according to CNN’s Fear and Greed index. The index had been staunchly in “extreme fear” and “fear” this year before surging into “greed” this month.
“The larger-than-expected drop in the tariffs between the US and China, while temporary, and the establishment of a framework for continued discussion, is exactly what the stock market was hoping to see,” said Carol Schleif, chief market strategist at BMO Private Wealth.
Tech stocks were particular winners on Monday: Despite a recent US carveout for hardware from tariffs on China, tech had been rocked in particular by the trade war between the US and China, because of the deeply intertwined relationship between American and Chinese technology sectors. Apple (AAPL) gained 6.3%, Tesla (TSLA) rose 6.75%, Nvidia (NVDA) was up 5.4%, Amazon (AMZN) rose 8.1% and Intel (INTC) was up 3.55%.
Stocks of luxury goods makers, which had tumbled in recent months, bounced back sharply: Hermes rose 3.5%, Burberry was up 3.67% and LVMH surged 7%.
Automakers also surged: Jeep and Chrysler maker Stellantis (STLA) was up 6.5%, General Motors (GM) rose 4.4% and Ford (F) was up 2.6%.
“The risk-on move in markets suggests that investors had not expected such a positive outcome to come so quickly,” said Ulrike Hoffmann-Burchardi, chief investment officer for global equities at UBS Global Wealth Management, in a Monday note. “Investors will now be focused on signs that the temporary fix can be turned into a lasting agreement.”
A bad time for a trade war
Bessent on Monday morning characterized the trade war de-escalation that he helped negotiate this weekend with his Chinese counterparts as tough but respectful.
“We were firm, and we moved forward,” Bessent told CNBC from Geneva. “We tried to identify shared interest. We came with a list of problems that we were trying to solve, and I think we did a good job on that.”
Bessent noted that America was negotiating from a position of strength because China needs the United States to buy its products more than the US relies on China for its goods exports. China’s economy is on the ropes, amid a housing crisis and an emerging debt crisis. Consumer spending has fallen, as has factory output. This is a bad time for China to be dealing with a crippling trade war.
“I had seen what’s going on in the Chinese economy. We can see what’s going on with the shipments to the US,” Bessent said. “Again, we are the (trade) deficit country. Historically, the deficit is a country has a better negotiating position.”
But, as the saying goes, no one wins in a trade war. US consumer sentiment fell off a cliff in recent months as inflation-weary Americans grew anxious about the prospect of rising prices and shortages. Shipments to the US from China were all but halted, rattling corporate America. And investors had braced for a recession, as economists said the US economy could get hit particularly hard by the trade war.
Containers are seen at the port in Lianyungang, in China's eastern Jiangsu province, on May 1. - AFP/Getty Images
The detente, though welcome by Wall Street, consumers and businesses, represents a remarkable shift for a Trump administration that only days ago had said the trade standoff with China was necessary to restore America’s lost manufacturing prowess. Trump had said last week that zero trade with China put America in a stronger position, because that meant it was no longer “losing money” to the Chinese.
Bessent said the deal didn’t represent a major policy shift, however.
“This is just a pause,” he said. “The April 2 tariff level for China was 34%, so we have moved that down from 34% to 10%.”
As the next step in negotiating, the US will focus on expanding its supply chains for what Bessent called “strategic necessities,” reducing its reliance on China for things like critical medicines, semiconductor chips and steel.
“What we do want is a decoupling for strategic necessities, which we were unable to obtain during Covid,” he said. “And we realized that efficient supply chains were not resilient supply chains. So, we are going to create our own.”
He also said the US would seek a fairer approach to international business. Bessent said the Trump administration wants to break down “insidious, non-tariff trade barriers that hurt American companies trying to do business” in other countries.
A “historic fresh start”
The trade war de-escalation with China represents a big win for the US economy and the American consumer, Kevin Hassett, Director of the National Economic Council of the United States, told CNN’s Kate Bolduan Monday.
Hassett said Trump had scored major concessions from China and the United Kingdom in their respective recent frameworks for trade negotiations, announced over the past few days, particularly by opening up the UK market to American beef and potentially paring back some of the barriers China had put in place on American companies looking to do business there. And Hassett suggested the agreement reached over the weekend should prevent further issues with supply shocks from China.
“A lot of that is cleared up now — the potential for supply disruptions from China,” Hassett said. “I think it’s really a very historic fresh start in the relationship between the US and China.”
But Hassett said the recent turn of events is not a contradiction in Trump’s prior policy.
“The bottom line is what President Trump was saying was that if we don’t work out that good deal, we’ll be fine,” Hassett said. “The fact is that we didn’t sell practically anything to China. We’re buying a lot of stuff from China. We could buy that stuff from other countries, or make it ourselves.”
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