A new round of talks between the U.S. and China held in London on Monday, with U.S. President Trump saying: "The talks should go smoothly." As one of the signs of easing, China has issued temporary export licenses to rare earth companies supplying the top three U.S. automakers. Last week's call between Chinese and US leaders had already brought some hope to Wall Street for lowering tariffs in advance, so the three major U.S. stock market indexes all achieved weekly gains last week.
After Trump announced the imposition of comprehensive tariffs on most economies around the world, the S&P 500 plummeted 12% in the five trading days from April 2 to April 8, and has rebounded. Subsequently, Trump announced on April 9 that he would suspend the tariffs for 90 days, easing market sentiment and decline.
On May 12, China and the United States reached an agreement in Geneva, Switzerland, deciding to suspend most of the previously implemented high tariffs within 90 days. Unless Trump decides to extend the previously set 90-day tariff suspension period, the U.S. suspends tariffs on Chinese goods due to imposement in August. The White House said Trump plans to return tariff rates to levels he first announced in April, or below the current 10% benchmark if a deal is not reached.
So although the current market is in a state of waiting and watching talks, there is less tension, and investors seem optimistic that the worst impact of Trump's tariff policy may be avoided. Last Friday, the U.S. stock market responded in advance that the U.S.-China talks may develop positively. The S&P 500 index exceeded 6,000 points for the first time since February 21, so traders once again set their targets at historical highs.
As of last Thursday, the S&P 500 lagged behind the MSCI World Index (excluding the U.S. Index) by nearly 12 percentage points in 2025, according to Bloomberg data, the worst year relative to its global peers since 1993. At the same time, even in the face of a slowdown in the U.S. economy and key indicators, U.S. stocks do not seem to show too much concern.
In the past three months, the S&P 500's average real volatility was close to 42% on the date of the release of the Consumer Price Index report, government monthly employment data and the Federal Reserve's interest rate decision, while the volatility on all other trading days was 29%. This was verified again after the non-farm announcement in May last Friday.
In addition to the Sino-US trade talks this week, the most critical market guidance lies in the US CPI report on Wednesday. In the past two months, fund managers have reduced their cash holdings and invested heavily in the U.S. stock market. Institutions say that if the consumer price index is higher than expected, the market is easily caught off guard. Fund managers have different views on the direction of stock markets in the coming months as a key challenge for investors is to assess the lagging impact of tariffs on inflation. Some worry that any surprises in inflation and the final return of volatility could lead to the bets of high-risk investments being sold off and trigger a new round of selling. At the same time, even if US stocks are optimistic, downside risks still exist, including Trump's policies, the possibility of a slowdown in the US economy in the second half of the year and the possibility of rising stock valuations. We will continue to pay attention to the prospects of the US inflation report we bring tomorrow.
