There’s been a noticeable shift in the trade landscape that’s had investors on edge for months. On Monday, the U.S. and China recently agreed to roll back some of the steep tariffs that rattled markets back in April.
For the next 90 days, U.S. tariffs on Chinese goods will drop from an absurd 145% to 30%, and China will cut its tariffs on U.S. imports to 10%. Add to that a new trade agreement with the U.K. and pauses on tariffs with other partners, and it’s no surprise markets are feeling some relief.
This de-escalation led to a quick surge in global stock prices. Lower tariffs ease fears of both an economic slowdown and a spike in inflation—two things that tend to spook investors. But while recent headlines are encouraging, it’s worth taking a closer look at what’s really driving the market and what could come next.
Why Did Markets Rally?
- Tariff policy is coming into focus. The past few weeks have confirmed that Trump is using high tariffs as a negotiating tactic—not a long-term plan to revive U.S. manufacturing.
- Tariff relief was better than expected. The new baseline of 10% global tariffs is much lower than what was feared in early April. Markets love when worst-case scenarios don’t play out.
- The economy is holding up. April brought 177,000 new jobs, and unemployment remains low at 4.2%. Consumer spending is still solid, even as consumer confidence has plummeted. Despite the noise, people are still buying.
- Inflation isn’t spiking. April’s Consumer Price Index (CPI) was released Tuesday, and came in at just 0.2% for the month, putting year-over-year inflation at 2.3%—the lowest since early 2021. That gives the Fed some breathing room.
But Not Everything Is Rosy
Markets may have gotten a bit ahead of themselves. The S&P 500 has rallied hard and is now trading well above “fair value,” especially when you consider that:
- Tariffs are still elevated compared to January levels.
- Policy uncertainty remains high.
- Some of the economic data (like job reports) reflects decisions made months ago, and the impact of tariffs may not be fully felt yet.
- The Fed is still in wait-and-see mode, with the first rate cut now not expected until September.
At its current level—hovering near 5,800—the S&P 500 is trading at a lofty multiple of nearly 22x forward earnings. That’s awfully expensive for a market still dealing with:
- Much higher-than-normal tariffs
- Ongoing policy volatility
- Slower global growth
- Delayed Fed rate cuts
- Potential pressure on corporate earnings
So while things are clearly better than feared a month ago, it doesn’t mean we’re back to smooth sailing and markets might have run a little too far, too fast.
What Could Go Right (Or Wrong) from Here?
Things could keep improving if:
- Tariffs continue to fall and more trade deals are finalized in the months ahead.
- Economic growth remains strong and the labor market stays healthy.
- Inflation stays in check, giving the Fed room to cut rates.
Things could turn south if:
- The current tariff relief is temporary and not followed by lasting agreements—especially with China.
- Economic data starts to weaken and confirms slowdown fears.
- Inflation unexpectedly rises as tariffs begin to hit consumer prices.
The Bottom Line
The recent trade developments are a step in the right direction. They’ve removed some major market uncertainty and helped ease recession worries. But while the worst fears may be behind us, the market’s sharp rally might be pricing in more good news than we’ve actually seen so far.
For investors, the message is clear: Stay grounded.
Markets often overreact—both to the downside and the upside. When things get volatile, it’s easy to panic, but history shows that staying patient and keeping perspective usually wins out. In uncertain times, the best move is to stay connected with your advisor and stick to your plan.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.