Trade Tensions Weigh on Markets Amid Optimistic Sentiment and Slashed Growth Forecasts

The US stock market has risen despite recent trade tensions between the US and China. The Organisation for Economic Co-operation and Development (OECD) has cut its US and global growth forecasts for 2020 and 2021 due to trade barriers and policy uncertainty. However, investors remain optimistic, with Nvidia regaining its position as the most valuable public company. The OECD's cuts in growth forecasts suggest that recent gains in the market may not be indicative of a longer-term trajectory.

The U.S. stock market has shown resilience in the face of recent trade tensions between the United States and China. Despite the ongoing uncertainty, the market has experienced a notable uptick, with Nvidia regaining its position as the most valuable publicly traded company. However, the Organization for Economic Co-operation and Development (OECD) has downgraded its growth forecasts for both the U.S. and global economies, suggesting that the recent market gains may not indicate a sustainable long-term trajectory.

The OECD, in its latest report, revised the U.S. growth outlook for 2025 to just 1.6% and for 2026 to 1.5%. This marks a significant reduction from the previous forecast of 2.2% for 2025. The OECD attributed this downgrade to tariffs and policy uncertainty, noting that the fallout from Trump's tariff policy, elevated economic policy uncertainty, a slowdown of net immigration, and a smaller federal workforce were key factors [1].

Global economic growth is also expected to slow, with the OECD projecting a reduction from 3.3% in 2024 to 2.9% in 2025 and 2026. The OECD stated that "the slowdown is concentrated in the United States, Canada and Mexico," while other economies are projected to see smaller downward revisions [1].

The OECD's report also highlights the impact of tariffs on inflation. The organization expects U.S. inflation to rise to 3.2% by the end of 2025, up from a previous estimate of 2.8%. The OECD attributes this increase to higher trade costs, especially in countries raising tariffs, which will push up inflation despite weaker commodity prices [1].

Despite the OECD's pessimistic outlook, investors remain optimistic. Nvidia, the artificial intelligence chipmaker, has once again become the most valuable publicly traded company in the world. The company's market cap reached $3.45 trillion on Tuesday, surpassing Microsoft's $3.44 trillion. Nvidia's growth has been fueled by its AI chips, which are in high demand due to their use in developing advanced AI software like ChatGPT [3].

The resilience of the U.S. stock market, despite the trade tensions and economic slowdown, suggests that investors are confident in the market's ability to adapt and recover. However, the OECD's downgraded growth forecasts serve as a reminder that the recent market gains may not be indicative of a longer-term sustainable recovery.

References:

[1] https://www.cnbc.com/2025/06/03/us-growth-forecast-cut-further-by-oecd-as-trump-tariffs-sour-outlook.html
[2] https://abcnews.go.com/Business/us-economic-outlook-slashed-oecd-trumps-tariffs-upend/story?id=122443152
[3] https://www.cnbc.com/2025/06/03/nvidia-microsoft-most-valuable-company.html