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In the afterglow of the US-China trade agreement, stocks are back up on the year. Portfolios are close to where they started before “Liberation Day.” And investors who stood their ground might feel vindicated, relieved, or just exhausted.
For all the vibrancy in the air, the return to previous levels is another reminder of how expectations have shifted. If the most extreme elements of a manufactured trade conflict have been settled or at least placed on hold, investors will turn their attention to what’s next: the struggle to get inflation under control, the Fed’s rate-setting predicament, and the challenge of navigating policy uncertainty.
“The transition from tariff rates, retaliation, and ultimately to trade deals is an important sequence for the recovery in US equity markets,” said Adam Turnquist, chief technical strategist for LPL Financial, in a note this week.
While economists and other market observers have applauded the progress in trade negotiations, so much still needs to be ironed out with so many other governments. Meanwhile, the 90-day reciprocal tariff pause is more than one-third used up.
In recent weeks, as optimistic tariff news was sprinkled into the wider, more pessimistic discussions about trade woes, it’s become clearer that positive trade headlines alone may not be sufficient to power the next leg upward.
“The lack of investor response could partially be due to the likelihood of the 10% universal tariff rate being maintained,” said Turnquist.
Fresh inflation figures released Tuesday continued to fuel a sense of unease, even as the numbers showed cooling annual pricing pressures.
Consumer prices increased 2.3% over the prior year in April, a slowdown from March’s 2.4% and below economists’ forecast for 2.4%. That’s the lowest annual increase since February 2021. On a monthly basis, prices increased 0.2%, lower than the 0.3% estimated by economists.
“While rapidly evolving tariff news has shocked markets in recent weeks and months, and economic survey data has been notably weak, we have yet to witness significant influences from tariffs on the inflation data,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a note on Tuesday.
For Fed officials, the mild inflation reading is another reason to stick to a wait-and-see approach. The backward-looking data has yet to fully capture the impacts of the new tariff regime. And with overlapping 90-day pauses and ongoing trade negotiations, business leaders aren’t sure what the new tariff landscape will ultimately be.
The walk-back with China produced instant relief. But investors are also left with hesitancy.
What is the financial equivalent of scar tissue and memories of adversity? The past few weeks have underscored how quickly things can change, for the better — and worse. A defensive positioning by spooked companies, foreign governments, and investors alike seems a likely outcome.
Alongside embracing the next series of catalysts and refocusing our attention back to the fundamental economic story, there will also be a reckoning of the damage that’s been done.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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