Markets Show Signs of Fatigue After Rally on U.S.-China Trade Progress

Wall Street’s remarkable recovery from April’s tariff-induced selloff showed signs of exhaustion on Tuesday as investors tempered their optimism following two days of strong gains. According to CNBC, the S&P 500 managed a modest gain of 0.1%, pushing the benchmark index into positive territory for the year, while the Nasdaq Composite climbed 1.61% to close at 19,010.08. The Dow Jones Industrial Average lagged behind, dropping 269.67 points, or 0.64%, to end at 42,140.43.

The mixed performance comes after Monday’s powerful rally, when stocks soared on news that the United States and China had agreed to temporarily reduce tariffs following negotiations in Geneva. While investors remain optimistic about easing trade tensions, Tuesday’s economic data and corporate developments contributed to a more cautious market sentiment.

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Trade Agreement Fuels Initial Market Recovery

Monday’s substantial gains were driven by the weekend announcement that both nations would slash reciprocal tariffs during a 90-day negotiation period. Treasury Secretary Scott Bessent revealed that U.S. tariffs on Chinese goods would be temporarily reduced to 30%, while Chinese tariffs on U.S. imports would drop to 10%, according to reports from earlier in the week.

The breakthrough in trade talks sparked a 3.26% surge in the S&P 500 on Monday, bringing its gain since April’s intraday low to more than 20%. Technology stocks particularly benefited from the agreement, with companies heavily exposed to Chinese supply chains or markets seeing notable increases. Tesla jumped nearly 7% during Monday’s session, while Apple and Nvidia gained 6% and 5%, respectively.

“Markets are rallying because investors are surprised with the velocity of the Chinese trade tariff deal progress,” said Jeff Kilburg, CEO of KKM Financial, commenting on Monday’s surge. The swift diplomatic progress caught many market participants off-guard, leading to rapid position adjustments across various sectors.

Inflation Data Supports Market Stability

Tuesday’s consumer price index report provided additional support for the market, showing that inflation remained stable at a 2.4% annual rate in April, matching economists’ expectations. This data helped alleviate concerns about persistent price pressures that could limit the Federal Reserve’s ability to cut interest rates later this year.

“And just like that, the markets’ twin fears — a tariff-induced recession and sticky inflation — have been greatly assuaged,” noted Chris Zaccarelli, chief investment officer at Northlight Asset Management. However, he cautioned that “high valuations and market concentration remain risks to much higher stock prices this year.”

The inflation report suggests that the initial impact of Trump’s tariff policies has not yet significantly affected consumer prices, allowing investors to focus more on the benefits of reduced trade tensions rather than inflationary concerns.

UnitedHealth Drags Down Dow

While the broader market maintained modest gains, the Dow Jones Industrial Average faced significant pressure from healthcare giant UnitedHealth Group. Shares of the insurance company plunged nearly 18% after the company suspended its 2025 guidance and announced an unexpected leadership change.

UnitedHealth revealed that CEO Andrew Witty would step down for personal reasons, effective immediately. Stephen Hemsley, who previously led the company from 2006 to 2017, will return as chief executive. The company cited higher-than-expected medical costs as a key factor in suspending its full-year financial guidance.

This dramatic development comes just weeks after UnitedHealth reported its first quarterly earnings miss since 2008, raising concerns about broader healthcare sector profitability and the impact of policy changes under the Trump administration.

Technology Sector Continues to Lead

Despite the mixed overall market performance, technology stocks maintained their leadership position. Nvidia shares advanced 5.6% on news the company would send 18,000 of its top artificial intelligence chips to Saudi Arabia, highlighting the ongoing global demand for AI computing resources despite trade uncertainties.

Other semiconductor companies followed Nvidia’s upward trajectory, with Broadcom rising nearly 5% and AMD adding 4%. The sector’s strength reflects investors’ belief that the temporary reduction in tariffs will particularly benefit technology companies with global supply chains and international customer bases.

The technology-heavy Nasdaq Composite has now recovered all its losses from the April tariff announcement, suggesting that investors see the sector as relatively insulated from ongoing trade tensions compared to more traditional industries.

Potential Flashpoints Remain

Despite the current optimism, analysts caution that significant risks remain on the horizon. According to CNBC, economic experts at Capital Economics identified several “potential flashpoints that might cause a re-escalation of the trade war,” including the July 8 expiration of the original pause on reciprocal tariffs and the August 12 expiration of the pause on tariffs specifically targeting China.

The current effective U.S. tariff rate of 15% on all imports, while down from the threatened 27% during the height of recent tensions, still represents the highest level since the Great Depression. However, numerous exemptions for key products like smartphones and semiconductors have mitigated some of the economic impact.

Capital Economics now projects world GDP to expand slightly less than 3% in both 2025 and 2026, describing this outlook as “a bit softer than usual but by no means a disaster,” suggesting that markets may continue to find support in the absence of a severe economic downturn.

Market Outlook Remains Cautiously Positive

As Wall Street digests the recent trade developments and economic data, the near-term outlook appears cautiously positive. The S&P 500’s return to positive territory for the year marks a significant psychological milestone, especially considering it had fallen as much as 17% earlier in 2025 amid escalating trade tensions.

Treasury Secretary Bessent indicated that negotiations with China would continue in the coming weeks, telling CNBC’s “Squawk Box” on Monday: “I would imagine in the next few weeks we will be meeting again to get rolling on a more fulsome agreement.” This ongoing diplomatic engagement should provide additional clarity for investors regarding the longer-term trade relationship.

Meanwhile, investors continue to monitor corporate earnings, Federal Reserve communications, and further economic data for signs of how the broader economy is adapting to the shifting trade landscape. With inflation appearing contained and trade tensions easing, market participants will likely focus increasingly on whether economic growth can maintain momentum amid the residual uncertainty.

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