Stocks Rise as US-China Trade Talks Boost Investor Sentiment

TL;DR

• S&P 500 is less than 2.4% away from its record high following renewed US-China trade discussions in London.
  
• Dow gains 105 points, while Nasdaq climbs 0.46%, amid easing tariff fears and strong market fundamentals.
  
• Investors anticipate May inflation data, while banks like Goldman Sachs and Deutsche Bank revise S&P 500 targets upward.
  
• Tariff moderation by President Trump contributes to risk-on sentiment as market correction nears its end.
  

S&P 500 Climbs Amid Optimism on US-China Trade Talks

U.S. equities edged higher on Monday as fresh trade negotiations between Washington and Beijing sparked optimism across Wall Street. The S&P 500 advanced by 0.3%, drawing closer to its record high of 6,144.15, and continuing a rally that began after the index bottomed out in early April.

The Dow Jones Industrial Average rose by 105 points, or 0.24%, while the Nasdaq Composite gained 0.46%. The positive momentum marks a continuation of back-to-back weekly gains, fueled by softening rhetoric on tariffs from the White House and a rebound in tech and industrial sectors.

Market Sentiment Buoyed by Trade Policy Recalibration

The rally has been largely attributed to President Donald Trump’s revised stance on tariffs, which investors perceive as less aggressive than initially expected. According to Treasury Partners’ CIO Richard Saperstein, “Markets have moved higher on tariff postponement and the perception that they will be more moderate than initially announced.”

The President has also reportedly authorized Treasury Secretary Scott Bessent to relax export restrictions on U.S. goods to China, especially in non-critical categories. However, Washington is expected to hold firm on restrictions related to advanced technologies deemed vital to national competitiveness.

S&P 500 Milestones

Trade Talks Aim to Break Rare-Earth Deadlock

While details remain limited, China is expected to negotiate rare-earth material exports in return for looser U.S. export controls. Rare earths are crucial for manufacturing semiconductors, batteries, and military technologies—sectors both countries view as strategically important.

The latest discussions follow a direct phone call between President Trump and Chinese President Xi Jinping, which set the tone for Monday’s in-person negotiations in London. Market participants view this development as a positive shift in tone following months of tension and escalating tariffs.

Strong Economic Data Adds Tailwinds to Recovery

The current stock market rally isn’t solely driven by geopolitics. Economic fundamentals in the U.S. remain supportive, with resilient consumer spending and corporate earnings helping restore investor confidence.

Financial firms including Goldman Sachs, UBS, Deutsche Bank, and JPMorgan Chase have raised their year-end projections for the S&P 500. Goldman’s latest target stands at 6,100, while Deutsche Bank now expects the index to close the year at 6,550, reversing previous downgrades.

“We now see the tariff drag at only about one-third of what we previously penciled in,” said Deutsche Bank in a June 2 note.

Technical Levels Suggest the End of a Correction

Analysts are watching closely as the S&P 500 approaches its prior peak. The benchmark index had previously fallen into correction territory—a drop of 10% from its high—on March 13. With the recent rally, that correction is on the brink of being nullified.

CFRA Research‘s Chief Investment Strategist Sam Stovall noted that “If the S&P 500 eclipses a new record high, it will officially end the correction.”

Historically, markets tend to advance by another 10% over the following 127 days after breaking out of a correction, although Stovall cautioned that “meaningful, extended gains are not assured.”

Inflation Data Could Dictate Next Market Move

Investors are now looking ahead to the May inflation data, scheduled for release later this week. The figures are expected to influence Federal Reserve policy, which remains a critical determinant of equity valuations.

A lower-than-expected inflation print could reinforce the current bullish narrative, possibly extending the stock market’s upward trajectory. On the other hand, any upside surprise in inflation may rekindle fears of interest rate hikes, injecting fresh volatility into markets.

Investor Outlook: Measured Optimism with Eyes on Policy

Wall Street is balancing cautious optimism with geopolitical watchfulness. The confluence of policy softening, constructive trade dialogue, and solid earnings growth has created a favorable environment for risk assets. However, analysts warn that further volatility is likely if trade talks stall or inflation data disappoints.

As JPMorgan Chase analysts concluded in a recent note, “Absent major policy surprises, the path of least resistance is to new highs.”