U.S. stock markets experienced eight consecutive “green” sessions in the first two weeks of May. This is a fairly rare event; when it happens, there is usually a good reason behind it.
Markets had already priced in easing trade tensions between the U.S. and China, in anticipation of last weekend’s summit in Switzerland.
As is often the case, the financial markets were right: on Monday morning, the Trump administration announced a tariff reduction, now at 30%, while China lowered its tariffs to 10%. This truce is set to last for at least 90 days.
So, the trade war is not over yet, but markets have breathed a sigh of relief for now. The NASDAQ rose by 4.4%, closing more than 20% above its early April “Liberation Day” levels. The Dow Jones Index increased 2.8%, now more than 10% above its April lows. The S&P 500 followed suit with a 3.3% gain.
All three indices closed above their 200-day moving averages — a strong technical signal widely interpreted within the trading community as an indication that the bear market may be over.
Despite the current — and likely temporary — reduction, it's important to keep in mind that tariff levels are still three times higher than they were before “Liberation Day.”
The wound is yet to heal. If tariffs remain at these levels, inflationary pressures and rising import costs for the U.S. could still lead to recessionary effects.
From a financial market perspective, May 12th was certainly a very positive day. However, investors are now turning back to economic data (including April inflation) and upcoming earnings releases, which may provide early signs of a possible U.S. economic recession. This trading session hasn’t changed the outlook, and given the latest data showing consumer confidence returning to historic lows and a rise in long-term unemployment, some cracks are beginning to show.
It will be important to assess the current rally carefully: is it just a rebound from previous lows ahead of further declines, or the start of a new bull market? Looking at the 200-day moving average, it has often served as the dividing line between the continuation of a bear market or the support level from which prices have launched toward new highs.
Holding this level in the coming days will be key to gauging the health of the financial markets and determining whether we might finally see new highs in 2025 — or if we’ll have to come to terms with a recessionary market.