Assessing the Rebound in North American Equities Amid Easing Trade Tensions

The North American equity market has entered a pivotal phase as the temporary US-China trade agreement, announced in May 2025, begins to reshape global supply chains and investor sentiment. By reducing tariffs from over 100% to 10% for 90 days, the deal has injected a dose of stability into markets long plagued by geopolitical uncertainty. According to a CNBC report, this de-escalation has already spurred a 3.8% surge in the Nasdaq Composite and a 6.15% monthly gain for the S&P 500 in May alone, driven largely by the "Magnificent 7" tech stocks. Yet, as strategists at BlackRock and Neuberger Berman caution, the market's optimism must be tempered by the fragility of the current détente and the unresolved structural issues between Washington and Beijing.

Strategic Sector Rotation: Winners and Losers in a Post-Tariff Landscape

The easing of trade tensions has triggered a discernible shift in sector rotation strategies. Technology remains the dominant force, with ETFs like the Roundhill Magnificent Seven (MAGS) climbing 4.8% post-deal and attracting $4.659 billion in inflows by July 2025, according to Finviz. This momentum is underpinned by robust demand for AI infrastructure and corporate earnings that have consistently exceeded expectations. However, the narrative is not uniformly positive. The healthcare sector, for instance, continues to grapple with the legacy of tariffs on pharmaceutical ingredients and medical equipment, which have inflated costs and constrained accessibility for vulnerable populations, as reported by The Lancet00779-2/fulltext).

Meanwhile, industrials and financials have emerged as beneficiaries of the trade truce. The industrials sector, historically a bellwether for economic recoveries, saw $1.854 billion in ETF inflows during Q3 2025, reflecting renewed confidence in global supply chain resilience, according to ETF Database. Financials, too, have gained traction, with the U.S. Dollar Index rising 1% post-deal and ETFs like the Invesco DB US Dollar Index Bullish Fund (UUP) capturing $2.138 billion in inflows, as noted by Finviz. These trends align with broader economic cycle-based rotation strategies, where investors favor cyclical sectors during periods of policy normalization, as outlined in a TradeWithThePros guide.

Near-Term Market Positioning: Balancing Optimism and Caution

While the trade deal has provided a short-term tailwind, market positioning remains a delicate balancing act. Charles Schwab's sector outlook maintained a "Marketperform" rating for all sectors in September 2025, underscoring the lingering risks of policy reversals and prolonged negotiations. Investors are increasingly adopting a "risk-on/risk-off" approach, with tactical allocations shifting toward China-exposed sectors like semiconductors and healthcare as trade tensions ease. For example, BlackRock has advised clients to overweight semiconductors, noting that the sector's long-term growth potential outweighs near-term export control risks.

Yet, the semiconductor industry itself remains a case study in vulnerability. Despite a 17% decline in Chinese output in early 2023 due to US export restrictions, loopholes such as cloud computing services and smuggling networks have allowed China to circumvent some controls, as documented in an FPRI article. This dynamic has forced investors to weigh the benefits of near-term trade relief against the long-term risks of geopolitical fragmentation in critical supply chains.

The Road Ahead: Policy Uncertainty and Strategic Adaptation

The Fed's anticipated rate cuts in Q3 2025 have further complicated the investment landscape. While lower borrowing costs could spur growth in small-cap equities and value-oriented sectors, they also risk inflating asset bubbles in already overvalued tech stocks. Lombard Odier highlights a notable rotation out of US big tech into European and Chinese tech stocks, driven by innovations like the DeepSeek-R1 chatbot and more attractive valuations. This shift suggests that investors are beginning to diversify their exposure beyond the traditional "Magnificent 7" playbook.

For now, the market appears to be in a phase of cautious optimism. The 90-day tariff truce has bought time for both the US and China to negotiate a more permanent resolution, but the clock is ticking. As Fidelity warns, sector rotation strategies-while potentially lucrative-are inherently volatile and require rigorous macroeconomic analysis to avoid missteps.

Conclusion

The rebound in North American equities is a testament to the market's ability to adapt to shifting geopolitical dynamics. Yet, the path forward demands a nuanced approach that balances sector-specific opportunities with macroeconomic risks. Investors who prioritize quality, diversification, and strategic timing-leveraging tools like sector ETFs and AI-driven analytics-will be best positioned to navigate the uncertainties ahead.