Wall Street Rollercoaster: Trade Tensions Return as China Speaks Out

TLDR

Treasury Secretary Scott Bessent stated the US and China have not started tariff negotiations, contradicting market hopes Stock futures dropped on Thursday with Dow down 0.5%, S&P 500 down 0.4%, and Nasdaq 100 down 0.5% Chinese officials denied reports of trade talks with the US, increasing market uncertainty Gold prices jumped 1.4% to $3,340 per Troy ounce as investors sought safe-haven assets Markets have been fluctuating based on trade-related headlines, with excessive investor pessimism potentially signaling a future price rebound

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Stock markets tumbled Thursday after Chinese officials denied reports of trade negotiations with the United States, following similar comments from Treasury Secretary Scott Bessent. The news sent futures tracking major US indexes lower in premarket trading, with investors struggling to make sense of conflicting signals about the trade relationship between the world’s two largest economies.

Dow Jones Industrial Average futures fell 210 points, or 0.5%, while S&P 500 futures dropped 0.4%. Contracts tied to the tech-heavy Nasdaq 100 declined 0.5%. This pullback came after Wednesday’s rally, which saw all three indexes soar before giving up some gains following Bessent’s comments.

E-Mini S&P 500 Jun 25 (ES=F)

Trade Tensions Resurface

Bessent told reporters that “both sides are waiting to speak to the other” and responded “Not at all” when asked if President Donald Trump had reached out to Beijing with an offer to lower tariffs. These statements poured cold water on market hopes for a quick resolution to trade tensions.

China further dampened expectations when Beijing officials stated they have not held any trade talks with the US. This dual denial from both capitals erased optimism that had briefly lifted markets midweek.

Market volatility remains high as investors try to gauge the potential for tariff reductions. Deutsche Bank strategist Jim Reid noted that the S&P 500 gave up about half its intra-day gains after Bessent’s comments, adding: “So we’re not quite out of the woods yet.”

The uncertainty pushed investors toward safe-haven assets. Gold jumped 1.4% to $3,340 per Troy ounce Thursday, reflecting its status as a refuge during periods of market turmoil. Meanwhile, the US Dollar Index, which tracks the greenback against six other currencies, slipped 0.4%.

Bond yields also retreated. The yield on the benchmark 10-year US Treasury note fell 3 basis points to 4.363%, while the 2-year note yield dropped 4 basis points to 3.846%.

Market Sentiment Shifts

The stock market has been ebbing and flowing on trade-related headlines for weeks. Wednesday’s market action, which saw stocks moderate gains after Bessent clarified the administration’s stance, continues this trend.

BMO’s chief investment strategist Brian Belski noted in a Wednesday report that “pessimism among investors when it comes to the trajectory of US stocks has increased substantially in recent weeks.”

However, Belski also pointed out that not all market indicators signal further downside. “Some of our most tried-and-true contrarian indicators have recently plunged to excessively negative levels, which suggests to us that a solid price rebound may be on the horizon should history be any sort of guide.”

One key factor Belski highlighted is the negative trend in forward earnings revisions. The ratio of rising earnings forecasts compared to all forecasts has plunged to around 30% for the second fiscal year out, showing a clear decline in optimism about future profits.

Tariff Impacts Looming

Major retailers are already preparing for potential tariff impacts. Reports indicate executives from Walmart, Target, and Home Depot suggested during a White House visit that higher costs from tariffs would be passed on to consumers.

This scenario creates a challenging outlook: higher costs for businesses, higher prices for consumers, lower profits for companies, and potentially lower stock prices for investors.

The market response to Trump’s latest tariff comments shows how sensitive investors have become to trade developments. Trump had previously said he had no plans to fire Federal Reserve Chief Jerome Powell, which initially boosted markets before Bessent’s China comments reversed some gains.

For now, investors remain cautious as they await more concrete developments in US-China trade relations. With both sides apparently waiting for the other to make a move, markets may continue to experience volatility in the near term.

The unresolved trade situation comes as other economic indicators send mixed signals, leaving investors to navigate an uncertain landscape where political statements can quickly shift market direction.

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