The Tariff Truce Opens a Window for Risk-On Investing—Here’s How to Play It

The U.S.-China trade deal announced on May 12, 2025, has reset the economic narrative overnight. A 90-day tariff truce—reducing U.S. levies on Chinese goods to 30% and China’s retaliatory tariffs to 10%—has unleashed a wave of optimism, with global markets rallying sharply. For investors, this is no fleeting reprieve. It’s a strategic inflection point. Reduced recession risks, delayed Federal Reserve rate cuts, and a reconfigured economic landscape are creating a once-in-a-cycle opportunity to reposition portfolios toward equities, particularly in manufacturing, technology, and consumer discretionary sectors. Here’s why acting now is critical.

The New Economic Backdrop: Recession Fears Fade, Fed Holds Steady

The tariff truce has slashed the odds of a near-term recession. Analysts now project U.S. GDP growth to stabilize at 1.3% in 2025, a marked improvement from earlier forecasts of a 0.7% drag. The Federal Reserve, once primed to cut rates to cushion the economy, now faces a calmer inflation picture. With core PCE inflation expected to moderate to 3.1% by year-end, the Fed is likely to keep rates steady at 5.25%—a pivot that eliminates a key headwind for equities.

This new reality has emboldened strategists. Ed Yardeni’s upward revision of the S&P 500’s year-end target to 6,500 (up from 6,000) reflects the shift: 11.2% upside potential from current levels. Goldman Sachs concurs, citing “improved visibility on trade flows and corporate margins” as catalysts for a 12-month target of 6,500. The path is clear: reduced trade uncertainty and a patient Fed create a risk-on environment that rewards equity exposure.

Sector Spotlight: Where to Overweight Now

The truce isn’t just about avoiding disaster—it’s about unlocking sector-specific opportunities:

1. Manufacturing: The Immediate Winner
   With tariffs slashed, companies like Caterpillar (CAT) and Boeing (BA) can breathe easier. The sector is projected to expand 1.5% long-term, as domestic production ramps up to meet demand. Look for companies with U.S. supply chain exposure and exposure to China’s manufacturing rebound.

1. Technology: Beyond Tariffs, Into Innovation
   The truce eases pressure on tech giants reliant on Chinese components (e.g., Apple AAPL, NVIDIA NVDA). More importantly, it buys time for negotiations on technology transfer disputes, reducing the risk of a tech “decoupling.” Focus on firms with domestic R&D strengths and exposure to AI/hardware demand.

2. Consumer Discretionary: Cheaper Goods, Higher Spending
   Lower tariffs on apparel (16% long-term vs. 14% short-term) and electronics mean consumers retain more purchasing power. Retailers like Walmart (WMT) and Target (TGT) benefit directly, while discount retailers (e.g., Ross Stores ROST) could see margin relief.

The Clock Is Ticking: Why Delaying Action Risks Missing the Rally

The 90-day truce is a probation period, not a permanent solution. Analysts warn that unresolved issues—fentanyl, intellectual property, and trade imbalances—could reignite tensions. If talks fail, tariffs could rebound to 15–17%, eroding gains.

Meanwhile, the market’s current euphoria hinges on the Fed’s patient stance. Should inflation surprise to the upside, rate hikes could return—a risk that’s priced in at just 15%. Investors who wait for “certainty” may miss the sweet spot: a period of low recession risk, stable rates, and improving trade flows.

Actionable Portfolio Shifts for This Window

1. Overweight Equities: Target S&P 500 ETFs (SPY) and sector ETFs like Industrial Select Sector SPDR (XLI) or Technology Select Sector SPDR (XLK).
2. Target Tariff-Sensitive Stocks: Prioritize companies with geographic or supply chain flexibility (e.g., Ford F, which sources parts from Mexico). Avoid those overly reliant on China’s export-driven sectors.
3. Short-Duration Plays: Consider call options on tariff beneficiaries, given the 90-day timeline.

The math is compelling: at the truce’s current trajectory, the S&P 500 could climb to 6,500 by year-end, a 14% return from May levels. Missing this move means ceding ground to investors who seized the moment.

Conclusion: The Truce Is a Launchpad, Not a Lifeline

The U.S.-China deal isn’t a panacea, but it’s a lifeline for risk assets. With the Fed on hold, recession risks muted, and corporate earnings stabilizing, the path forward favors aggressive equity allocations. The clock is ticking—act now to capture this window, or risk being left behind when the next chapter of trade talks unfolds.

The time to act is now. The next 90 days will determine the market’s trajectory—but don’t wait for clarity. Move swiftly.