The Dow Jones Industrial Average surged by more than 1,000 points as Wall Street celebrated a significant breakthrough in the US-China trade dispute that has rattled markets for months.

At a Glance

• The Dow jumped 1,160 points (2.8%) following announcement of a 90-day truce in the US-China trade war
• S&P 500 climbed 3.3%, approaching its all-time high, while the Nasdaq composite rose 4.3%
• US and China agreed to reduce tariffs significantly – US cutting to 30% on Chinese goods, China to 10% on US goods
• The 90-day pause provides time for further negotiations and helps retailers prepare for key shopping seasons
• Treasury yields rose as investors adjusted expectations for Federal Reserve interest rate cuts

Markets Celebrate Trade War Breakthrough

American stocks rallied dramatically after the United States and China announced a 90-day truce in their ongoing trade dispute. The Dow Jones Industrial Average rose by an impressive 1,160 points, representing a 2.8% gain, while the S&P 500 increased by 3.3%, pushing it within striking distance of its all-time high. The technology-heavy Nasdaq composite outperformed both, climbing a substantial 4.3% as investors rushed back into growth stocks that had been particularly vulnerable to trade tensions.

The agreement between the world’s two largest economies includes significant tariff reductions, with the United States cutting duties on Chinese imports to 30% and China reducing tariffs on American goods to 10%. This represents a substantial de-escalation from the higher rates that had been imposed during the height of trade hostilities. The temporary pause in the trade war also provides breathing room for further negotiations toward a more comprehensive agreement.

“Ensure that shelves are stocked for the all important back-to-school and holiday shopping seasons,” noted Carol Schleif, highlighting one immediate benefit of the trade truce.

Broader Market Impact and Sector Winners

The positive market reaction extended well beyond major indices. Smaller company stocks, which often have more exposure to domestic economic conditions, saw substantial gains as investors recalibrated their growth expectations. Apparel companies, which have faced significant challenges from tariffs on imported materials and finished goods, were among the biggest winners in the rally. The reduced trade tensions also boosted travel-related stocks and retail companies that rely heavily on imported merchandise.

Commodities markets reacted strongly to the news as well. Crude oil prices increased as traders anticipated stronger global economic growth and consequently higher energy demand. The U.S. dollar strengthened against a basket of major currencies, reflecting increased confidence in the American economy. Conversely, gold prices fell as investors moved away from traditional safe-haven assets toward riskier investments with higher potential returns.

“No reason to believe that this will be anything other than a slow process,” cautioned Scott Wren, suggesting that while progress has been made, challenges remain in reaching a comprehensive agreement.

Economic Outlook and Federal Reserve Implications

The trade truce had immediate implications for expectations regarding Federal Reserve policy. The yield on the 10-year Treasury note increased noticeably as investors adjusted their predictions for future interest rate cuts. Prior to the announcement, markets had been pricing in multiple rate reductions from the Federal Reserve, based partly on concerns that trade tensions would slow economic growth. The improved trade outlook has reduced expectations for aggressive monetary easing.

Global stock markets also responded positively to the news, though the gains were not as dramatic as those seen in U.S. markets. European and Asian indices rose as investors worldwide recognized the importance of reduced tensions between the world’s two largest economies. Despite the generally positive response, many market observers emphasized that significant challenges remain in reaching a comprehensive, long-term agreement between the United States and China on trade and related economic issues.