Trade Talks Ignite Market Rally—But Can Optimism Outlast the Hurdles?

The U.S. stock market surged on May 12, 2025, as investors welcomed news of “productive” U.S.-China trade talks. Futures for the Dow Jones Industrial Average, S&P 500, and Nasdaq-100 all rose sharply, with the Dow gaining 440 points (1%) and the Nasdaq-100 climbing 1.3%. This rally reflects a fleeting truce in a tariff war that has rattled global markets for years. But as optimism collides with unresolved disputes, investors must ask: Is this a sustainable rebound, or just another “buy the rumor” blip?

The talks, held in Geneva, marked a critical turning point. Treasury Secretary Bessent described the discussions as “yielding a great deal of productivity,” though specifics remain under wraps. The primary breakthrough? A tentative agreement to establish a framework for ongoing trade consultations—a potential counter to the 145% tariffs imposed by the U.S. and China’s retaliatory 125% duties. Yet, significant obstacles linger:

1. Tariff Reductions vs. Reality: While the U.S. has hinted at lowering its tariffs to 80%, even a drop to 50% would barely revive trade volumes. As shows, the current 145% rate has already caused a 40% collapse in bilateral trade since 2020. Analysts argue that anything short of full removal risks perpetuating economic scarring.

2. Non-Tariff Barriers: China’s demands for reciprocal tariff cuts clash with unresolved issues like blocked U.S. agricultural exports and rising docking fees for Chinese ships. These “hidden” barriers, which analysts estimate cost U.S. farmers $12 billion annually, could reignite tensions if ignored.

3. Geopolitical Posturing: Chinese state media framed the talks as a “strategic victory,” emphasizing Beijing’s stance on sovereignty and technology. This rhetoric underscores the deep-seated distrust complicating any deal.

The market’s reaction, however, has been swift. reveals a sharp rebound on May 12, with tech and industrials leading gains. This aligns with investor relief over reduced trade war fears—but also with a classic “buy the rumor” pattern.

Yet risks loom large. The U.S. dollar’s climb to 103.5 on the DXY index and oil’s jump to $64 per barrel for Brent crude reflect renewed optimism in global growth. But if trade talks stall, these gains could evaporate. will soon test whether the economy can withstand the trade war’s drag.

Conclusion: A Fragile Truce, Not a Triumph
While the market rally is understandable given the talks’ progress, investors should tread carefully. The asymmetry of tariff reductions—U.S. tariffs at 145% vs. China’s 125%—and unresolved non-tariff barriers mean a full resolution is far from certain. Even if tariffs drop to 50%, trade volumes would still remain 25% below pre-2018 levels, as illustrates.

Add geopolitical friction to the mix, and the path to a durable deal grows murkier. Investors would be wise to heed analysts’ advice: diversify into less trade-sensitive sectors like technology and renewables. The markets may cheer today, but the real test comes when the “talks” turn into “terms.” Until then, this rally remains a cautious bet on hope, not on hard evidence.