The U.S. stock market has been on a tear recently, with the S&P 500 rising for nine straight sessions, marking its longest winning streak since 2004. This rally has been driven by easing U.S.-China tensions and better-than-expected corporate earnings. Treasury Secretary Scott Bessent called the U.S.-China trade war “unnecessary,” stoking hopes for a de-escalation.
President Trump has also indicated that he expects duties on Chinese goods to decline, and China has shown a willingness to return to negotiations. First-quarter corporate earnings have also been strong, with the S&P 500 on track to report profits that grew by more than 10% last quarter. Several market-driving narratives, such as insatiable AI demand, have also bolstered investor confidence.
However, analysts argue that a signed trade deal with China and a dovish stance from the Federal Reserve are necessary for further stock gains.
Stock market buoyed by trade optimism
Economists do not foresee the Fed cutting rates this year, making achieving the ideal conditions for the rally to continue challenging.
Another risk is the potential negative impact of tariffs on the labor market. Small businesses, which employ nearly half of all American workers, may find it harder to adapt to tariffs than larger corporations. Elevated interest rates also threaten the market rally.
If yields on 10-year Treasury bonds rise above 4.5%, it could negatively affect stock valuations. In summary, while strong corporate earnings and easing trade tensions have fueled recent stock market gains, the sustainability of this rally will likely depend on successful U.S.-China trade negotiations and accommodating signals from the Federal Reserve. Potential headwinds include the adverse effects of tariffs on the labor market and rising Treasury yields.
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