U.S. Stocks Surge 1.13% on Trade Deal Optimism and Rate Cut Hopes

The U.S. stock market experienced a significant surge, with the Dow Jones Industrial Average gaining 490 points, or 1.13%. The tech-heavy Nasdaq Composite Index rose by 0.55%, and the S&P 500 Index climbed by 0.65%, surpassing its previous all-time high and trading at 6,183.25. This rally was driven by optimism surrounding trade negotiations and expectations of a rate cut by the Federal Reserve.

The market's positive sentiment was further bolstered by a rare earth deal between Washington and Beijing, which added to the upbeat tone. According to the preliminary agreement, the U.S. would gain access to magnets and rare earth minerals from China, while lifting a series of trade restrictions. Though full details remain unclear, China has previously emphasized the importance of high-powered semiconductors to its economy.

In addition to trade optimism, consumer sentiment improved sharply in June, with inflation expectations falling. The Michigan Consumer Sentiment Index rose to 60.7, up 8.5 points from the previous month. The figures are significant as they have a direct impact on the direction of monetary policy. Low inflation figures, as well as the relative weakness of the labor market, may push the Federal Reserve into a position where it has to cut interest rates sooner. This is what both stocks and crypto markets have been waiting for.

However, risks remain. The U.S. economy faces structural challenges, particularly around its rising government debt. The total price tag may have ballooned well past $3 trillion, according to reports. As lawmakers scramble to include last-minute allocations for their constituencies, the total price tag may have ballooned well past $3 trillion.

The market's rally was also supported by strong economic data in the U.S. that suggested the economy wasn't approaching stagflation territory. This, along with suggestions from the White House of a possible extension to July's trade tariff deadlines, provided investors with fresh wind in their sails. The benchmark S&P 500 in the U.S. rallied by more than 20% since its April low to come within just a few points of its highest ever level. The 30% rebound of the technology-heavy Nasdaq was even more striking, as the 'Magnificent Seven' have come back into fashion. Another record high for Nvidia, itself enjoying a bounce of more than 60% since April, was accompanied by notable buying in the likes of Meta Platforms and Apple.