Can Upcoming US-China Trade Talks Fuel This ‘Unloved Rally’?

U.S. stocks finished a turbulent session higher on Wednesday after Trump administration officials said they would meet with Chinese counterparts this weekend, boosting hopes for an imminent de-escalation of tensions between the world’s two largest economies.

Nearly three-quarters of the stocks in the S&P 500 rose on Wednesday, extending a weekslong ascent spurred by optimism about incoming trade deals. 

The Treasury Department and Office of the U.S. Trade Representative each announced late Tuesday that their respective leaders, Scott Bessent and Jamieson Greer, would meet with Chinese officials during a trip to Switzerland starting Thursday. Treasury Secretary Bessent says the meetings will take place on Saturday and Sunday. 

Stocks Have Rebounded on More Than Just Hope, Deutsche Bank Says

The plans add to trade optimism that has propelled stock gains in recent weeks. The S&P 500 notched its longest winning streak since 2004 last week when strong earnings reports and hints at coming U.S.-China talks revived Wall Street’s risk appetite. The rally erased all the S&P 500’s post-“Liberation Day” losses.

“It’s fair to say there’s plenty of suspicion at how quickly various assets have rebounded” from April’s sell-off, conceded Deutsche Bank analysts in a note on Tuesday. “But there are several examples from recent history where unloved rallies carried on for some time,” including the months after 2020’s COVID sell-off and the 2023-24 bull market, during which recession fears loomed over markets.

They note optimism about de-escalation with China is just one of several factors driving stocks’ recent gains. Resilient economic data has boosted confidence that tariffs won’t cause a recession, and falling oil prices have eased inflation and given the Federal Reserve more latitude to cut interest rates. (The Fed, which concluded its two-day policy meeting on Wednesday, left interest rates unchanged and is seen continuing to do that at least until July, according to data from CME Group.)

Will ‘De-Escalation’ Be Enough for Wall Street?

Morgan Stanley analysts in a note on Monday argued the U.S. and China will need to reach a trade deal “in the next couple of weeks” for stocks to maintain their momentum and retake their all-time highs. 

Bessent, though, says the coming negotiations are unlikely to result in a comprehensive deal. “My sense is that this will be about de-escalation, not about the big trade deal,” Bessent told Fox News on Tuesday.

Nonetheless, given the stakes, any de-escalation could be enough to fuel further stock gains. The S&P 500’s companies get an estimated 7% of their annual revenue, or $1.2 trillion, from China, according to an analysis by Torsten Slok, chief economist at Apollo Global Management. A U.S.-China “decoupling” would decimate that revenue and lead to “a significant decline in earnings,” Slok says. 

Bessent on Tuesday said the White House isn’t interested in halting trade with China. “We don’t want to decouple,” he said. “What we want is fair trade.”

This story has been updated to reflect the market close.