Key Points
- Investors are largely expecting the latest U.S.-China trade fight to fade away.
- The market believes that both sides will ultimately find a compromise.
- This optimism is keeping stocks afloat despite “scary” trade headlines and new tariff threats.
- Analysts say the market is more focused on economic growth and the AI boom.
Despite a new round of “scary” trade headlines, investors are betting that the latest flare-up between the U.S. and China will ultimately fade away. According to analysts at Sevens Report Research, the market is largely shrugging off the new tariff threats because it believes “cooler heads will prevail.”
The latest trade spat was ignited when President Trump threatened to impose triple-digit tariffs on China in response to Beijing’s new export controls on critical rare earth materials. While this has created some short-term volatility, the market’s underlying optimism remains intact.
Wall Street’s main stock indexes rose on Monday, a sign that traders are hopeful for a positive outcome from the upcoming meeting between President Trump and Chinese President Xi Jinping in South Korea.
“As long as markets expect that’ cooler heads will prevail,’ then scary trade headlines (and tariff threats) are unlikely to hit this market meaningfully,” the Sevens Report analysts wrote. They argue that the ultimate direction of the stock market is still being driven by the bigger stories of economic growth and the ongoing AI boom, not by the day-to-day drama of the trade war.
Of course, this doesn’t mean the market is completely ignoring the risks. The recent trade tensions, combined with worries about the health of U.S. regional banks and a potential AI bubble, have led to a noticeable spike in market volatility this month.
