US stocks retreat from session highs as China trade deal remains uncertain

It’s been weeks of mixed messages from the White House. Even as the administration flip-flops on tariff policies, one thing has remained consistent: Investors are acting on the slightest hint of good news. 

Yesterday afternoon I wrote that markets were trading on a dream. I was talking about the rally we saw after US Treasury Secretary Scott Bessent reportedly said in a private meeting that the trade war with China is “unsustainable.”

That was nothing compared to the after-hours surge we saw later on Tuesday. 

The main catalyst was a comment from President Trump. He told reporters yesterday afternoon that he has “no intention” of firing Fed Chair Jerome Powell. Trump added that he “never” planned on removing Powell despite previously posting that the Chair’s “termination cannot come fast enough.” 

Markets got a second boost when Elon Musk said on Tesla’s Q1 earnings call that he’d be stepping back from his DOGE duties next month. The comment was enough to distract investors from Tesla’s first quarter miss and 71% decline in net income. Shares were up almost 7% midday Wednesday. 

Stocks and the dollar rose, while Treasury yields retreated. It’s further proof that the market doesn’t need to see any tangible policy changes to rally. 

US indexes were still in the green Wednesday, but the rally was fading. The S&P 500 was trading 2% higher at 2:15 pm ET, while the Nasdaq Composite had gained 3%. The Dow Jones Industrial Average was up around 600 points, although earlier in the session it had added as many as 1,100 points. 

The intraday pullback followed more remarks from Bessent, this time in a public appearance. The Treasury Secretary spoke at an IIF event Wednesday morning, saying that China “is in need of rebalancing.” He did not, however, reassure investors that the White House will be walking back its levies on the country — a comment investors would have appreciated. 

“China’s current economic model is built on exporting its way out of its economic troubles,” Bessent said. “It’s an unsustainable model that is not only harming China but the entire world.”  

Trump yesterday told reporters that tariffs on Chinese imports will “come down,” but “won’t be zero.” As of Wednesday afternoon, the White House had not commented further on the situation or the status of any negotiations. 

The Wall Street Journal, however, just reported that China tariffs could land around 50% to 65%, citing unnamed senior officials. This would be less than half of the current level. 

Confirmation on this would no doubt send stocks higher. In the meantime, at least Trump has taken firing Powell off the table. 

We’ll share more updates tomorrow, when the tariff situation undoubtedly will be completely different.