On the Heels of the U.S-China Truce, Stocks Power a Global Risk Rally

Investor enthusiasm returned to U.S. markets following a major breakthrough in trade negotiations between the U.S. and China, with both nations agreeing to reduce tariffs and ease tensions. This decision sent a jolt through global financial markets, leading to a more than 3% surge in S&P 500 futures.

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Wall Street’s appetite for risk was reignited, especially after Treasury Secretary Scott Bessent described the discussions as “very robust and productive.” The Nasdaq 100 futures jumped by 4%, signaling a potential return to a bull market for the tech-heavy index.

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Leading the rebound were U.S. megacap tech firms, which had previously taken significant hits due to trade-related uncertainty. Nvidia, Amazon, Apple, and Tesla each climbed over 5% in premarket trading, showing investor confidence in these key players.

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Meanwhile, the U.S. dollar strengthened nearly 1%, reaching its highest point in a month, while gold prices slid more than 3%. The 10-year Treasury yield also rose by seven basis points, reflecting traders’ lowered expectations for imminent interest-rate cuts.

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The agreement between the world’s two largest economies came as a relief to investors who had feared that the ongoing trade war could push the global economy into recession. A joint statement released in Geneva revealed that the two nations would reduce tariffs on each other’s goods for a 90-day period. For many analysts, this temporary pause was seen as a sign that the worst of the trade-related economic strain might be over.

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Guy Miller, chief market strategist at Zurich Insurance Co., remarked that the risk of a prolonged U.S. recession had receded. He noted that the easing of trade restrictions was a positive development for corporate earnings, as it lifted a major headwind to revenue growth.

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The trade war had dominated market sentiment throughout the year, and many investors had been anxiously awaiting progress after former President Trump’s April 2 “Liberation Day” announcement of sweeping tariffs. The tit-for-tat retaliation saw U.S. tariffs on Chinese goods rise to 145%, while China imposed duties of 125% on American exports. This cycle of escalation had stoked fears of stagflation and reduced investor confidence in U.S. markets, traditionally viewed as safe havens.

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With the new agreement, U.S. tariffs will be cut to a combined 30%, while Chinese tariffs on American goods will fall to 10%. Speaking on Bloomberg TV, Bessent emphasized that neither country wanted a complete economic decoupling, although he acknowledged that it was unlikely tariffs would fall below 10%.

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Roberto Scholtes, head of strategy at Singular Bank, said that the equity markets were now adjusting to reflect a scenario where “Liberation Day” had never happened and the U.S. had simply applied a 10% universal tariff. He noted that underlying corporate fundamentals remained strong, earnings in the first quarter had outperformed expectations, and there was still ample capital waiting to be deployed.

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Despite the upbeat reaction, some investors remain cautious. Karen Georges, an equity fund manager at Ecofi, warned that while markets were reacting positively, the underlying uncertainty had not been fully resolved. She noted that the 90-day tariff pause didn’t erase the volatility introduced by the initial tariff announcements in early April. “The market remains fragile,” she said.

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While most sectors benefited from the rally, pharmaceutical companies lagged behind. President Trump’s announcement that he would sign an executive order to reduce U.S. prescription drug prices sparked investor concern over potential profit declines in the sector. He claimed that the cuts would amount to “59%, PLUS!” in a social media post and confirmed the order would be signed Monday morning in Washington.

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As a result, shares of major drugmakers like Novo Nordisk, AstraZeneca, and Roche fell in Europe, while Japan’s pharmaceutical sector suffered its steepest single-day decline since August. U.S.-based firms such as Eli Lilly, Pfizer, Bristol-Myers Squibb, and Merck also traded lower ahead of the market open.

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Elsewhere in the world, geopolitical developments added to the market optimism. Indian stocks rose nearly 4%, and Pakistani equities surged 9% following an agreement between the two nations to implement an immediate ceasefire after days of intense conflict. In Eastern Europe, Ukrainian President Volodymyr Zelenskiy announced plans to travel to Istanbul on May 15 for direct peace negotiations with Russian President Vladimir Putin.

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Valentin Marinov, head of G-10 FX research at Credit Agricole, commented that these global diplomatic breakthroughs could provide further support for risk-sensitive assets and currencies. In contrast, traditional safe-haven currencies such as the yen, Swiss franc, and even the euro might come under pressure as risk appetite broadens.

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Altogether, the easing of trade tensions, progress on drug pricing reform, and geopolitical diplomacy signaled a more optimistic outlook for global markets, even as some uncertainties linger beneath the surface.

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