Markets soar after tariff truce, but inflation worries loom large

2 minutes read

13 May 2025

Markets soar after tariff truce, but inflation worries loom large

It began like any other Monday on Wall Street-until it didn’t. By the closing bell, traders were grinning as the Dow Jones soared nearly 1,200 points, its best day in months. The S&P 500 and Nasdaq weren’t far behind, clocking up gains of 3.35% and 4.35% respectively. For a market battered by weeks of uncertainty, it felt like a collective sigh of relief. But behind the numbers, a bigger story was taking shape-one of trade, tech, and the ever-present shadow of inflation.

A truce across the pacific

The spark? A surprise announcement that the United States and China had agreed to a temporary tariff truce. Over the weekend, negotiators in Geneva hammered out a deal: the U.S. would slash tariffs on Chinese imports from a punishing 145% to 30%, while China would cut its own duties on American goods from 125% to 10%. The agreement, set to last 90 days, was enough to send global markets into celebration mode.

Tech giants led the charge. Amazon’s shares leapt over 7%, Apple surged more than 6%, and Meta Platforms and Nvidia both posted robust gains. Retailers with heavy exposure to Chinese tariffs-names like RH, Best Buy, and Five Below-saw double-digit jumps. The consumer discretionary sector in the S&P 500 notched its best single-day performance in over a month, with Carnival, Wynn Resorts, and Williams-Sonoma among the biggest winners.

“The consensus from both delegations this weekend is that neither party desires a decoupling. The imposition of such high tariffs was tantamount to an embargo, which both sides wish to avoid. We are committed to maintaining trade,” said U.S. Treasury Secretary Scott Bessent after the deal was struck.

The breadth of the rally was striking. Of the 32 stocks in the Dow, 27 finished higher. In the S&P 500, 376 out of 453 stocks advanced. NRG Energy stood out, soaring 24% after announcing a $12 billion acquisition of natural gas assets-a bold bet on the future of AI-driven energy demand. “This acquisition effectively doubles our generation capacity and positions us to meet the surging electricity needs of tomorrow’s economy,” NRG’s CEO told analysts on Monday. Bar chart showing notable S&P 500 stock gainers on Monday, including NRG Energy, Stanley Black & Decker, Newell Rubbermaid, Zebra Technologies, and Masco, with NRG Energy leading with a gain of over 25%.

Inflation: The next hurdle

Yet as the dust settled, a new question emerged: would this rally last, or was it just a brief respite? The answer, many agreed, would hinge on the next major data release-the April Consumer Price Index (CPI). With inflation still running hot, investors knew that any sign of persistent price pressures could quickly reverse Monday’s gains.

“Tariffs coming down is a positive, but it’s only one piece of the puzzle,” cautioned Michael Grant, senior economist at Lonsdale Partners. “If inflation doesn’t cool, the Federal Reserve may have no choice but to keep rates higher for longer.”

Goldman Sachs, buoyed by the trade news, raised its S&P 500 target to 6,500 for the next year. “In our fundamental macro outlook, both the economy and corporate earnings are expected to keep expanding, while bond yields should remain stable at present levels,” said David Kostin, chief U.S. equity strategist at Goldman Sachs. Still, even the optimists acknowledged that the road ahead is far from smooth.

As Wall Street catches its breath, the mood has shifted from anxiety to cautious optimism. The rally may have been sparked by a single headline, but its fate now rests on a far broader set of forces. For investors, the next chapter will be written not just in trade agreements, but in the numbers that define the health of the American economy.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.