S&P 500 rallies as Powell and China tariff tensions ease

New York — Wall Street’s main indices rallied on Wednesday, with the S&P 500 touching a two-week high on hopes of a de-escalation in the US-China trade war and as President Donald Trump scaled back his threats to fire Federal Reserve chair Jerome Powell.

The Trump administration would look at lowering tariffs on imported Chinese goods pending talks with Beijing, Reuters reported. That followed a Wall Street Journal report citing a senior White House official as saying that US tariffs on China were likely to come down to between about 50% and 60%.

Trump said on Tuesday that a trade deal with China could “substantially” cut tariffs. The prospect of negotiations between Washington and Beijing, locked in a tit-for-tat tariff war, lifted market sentiment.

Stocks extended gains after the Journal report, building on early momentum after Trump said he had “no intention” of firing Powell, walking back on his comment that the Fed chair’s termination could not come “fast enough”.

Trump’s criticism of Powell had fuelled concerns about the central bank’s autonomy, leading to sharp losses in US assets, including stocks and the dollar, earlier in the week.

“There seems to be some light at the end of the tunnel here in terms of the trade war, investors are beginning to feel more confident that perhaps the worst of the trade rhetoric is over and are beginning to focus on some of the fundamentals, like the earnings,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Among key earnings, Tesla leapt nearly 8%. The EV-maker reported better-than-expected profit for its core auto business. CEO Elon Musk said he would step back from his involvement in the Trump administration to focus on running his numerous companies.

The Dow Jones industrial average rose 1,082.18 points, or 2.76%, to 40,269.16, the S&P 500 gained 172.17 points, or 3.26%, to 5,459.49, and the Nasdaq Composite gained 691.40 points, or 4.24%, to 16,991.82.

The consumer discretionary and information technology stocks led broad-based gains, up 5.2% and 4.6%, respectively, helping the tech-heavy Nasdaq largely outperform peers.

The CBOE Volatility Index, Wall Street’s fear gauge, touched its lowest since April 3.

The apparent softening on China tariffs was a welcome sign for markets battered by Trump’s erratic trade policies.

The S&P 500 has dropped more than 11% from its February record high. However, it jumped nearly 6% over the past two sessions.

The soothing signals from Washington boosted the US treasury market. The 10-year treasury term premium, a measure of the compensation investors demand for the risk of holding long-dated US government debt, rose to 0.84 basis points on Monday, its highest level since 2014, according to the latest available data by the Federal Reserve Bank of New York.

Benchmark 10-year treasury yields were last at 4.321%, down about eight basis points from Tuesday. Two-year yields were higher on the day, at 3.82% from 3.788% on Tuesday.

Later on Wednesday, the Treasury will sell $70bn in five-year notes. The auction will be closely watched by investors as a sign of investor appetite for US government debt after a soft two-year note auction on Tuesday.

However, given the continued uncertainty, some market participants remain sceptical of the recent rally.

“Unless the president or the administration comes out with consistent statements — and by consistent, I mean by more than (a) 24-hour news cycle — this is a temporary rally,” said Peter Andersen, founder, Andersen Capital Management.

Boeing gained 7.2% after reporting a smaller-than-expected quarterly loss.

A survey from S&P Global on Wednesday showed US business activity slowed to a 16-month low in April and prices charged for goods and services soared amid tariff uncertainty.

Reuters