The conclusion of May presented a promising finish for stock markets with unexpected gains, marking a turning point since 2023 as the worries over global trade started to lessen. The S&P 500, a broad marker of United States’ stocks, increased by a commendable 6.2% within the span of the last 30 days. Meanwhile, the Nasdaq managed an impressive surge of 9.6% during the same timeframe — a record performance for each index not seen since November 2023. Indeed, for the S&P 500, this has been the most fruitful May since the early 90s.
The Dow, yet another key stock index, marked a significant 3.9% climb within May. Market fluctuations caused by the ongoing trade war have been seemingly unending, and Friday was no different, showing a jittery start with lower market opening due to resurging fears of tense relations with China. However, the markets took a turn for the better throughout the day, ending largely flat.
This shift towards stability was largely attributed to the assuring comments from the President, alleviating fears about reigniting disputes with China. The day’s tone was set early on, with the President expressing his disappointment towards China of violating an agreement brokered during a handshake pact in Geneva earlier that month.
In his early morning statement, the President strongly rebuked China claiming it had ‘COMPLETELY DISREGARDED OUR AGREEMENT’ and indicated that a stringent response was in store. However, the situation seemed to ease later in the day when the President mentioned his intention to discuss rising concerns with President Xi.
The President expressed his unhappiness regarding China’s breach of a significant part of their agreement, but he also made it clear that he would engage in dialogue with President Xi to smooth over the tensions. This news gave the markets a semblance of respite, building hopes of a resolution to the ongoing trade conflicts.
The previous White House announcement from May 12th led to an expectation that China would lift its counteractive tariffs and pause their ‘nontariff countermeasures taken against the United States’. A mutual agreement had been reached during this time, where each side would reduce tariffs by 115% over the course of 90 days.
However, a Chinese Embassy spokesperson made a contrary statement early Friday, indicating that despite ongoing dialogues since the talks in Geneva, China had raised recurrent concerns about U.S.’s misuse of export control measures, particularly in the semiconductor sector, and other similar actions.
Several media outlets reported during the week that the administration had ordered American businesses to halt the shipping of high-level goods, like chip design software and chemicals, to China. This included a notable report from Reuters suggesting that new restrictions targeting key choke points could potentially escalate tensions further, and were likely designed to stall China’s progress in crucial sectors.
Liu Pengyu, spokesperson for the Chinese Embassy, urgently called upon the United States to correct its unjust actions, stop applying discriminatory restrictions against China, and maintain the agreement reached during high-level talks in Geneva. This statement came in response to the U.S.’s new, potentially contentious export controls.
In response to these concerns, U.S. Trade Representative Jamieson Greer, appearing on CNBC on Friday morning, confirmed the ongoing deliberations about China’s compliance levels following the Switzerland meeting. Greer criticized China’s lax approach towards fulfilling the terms of the agreement, deeming it as ‘entirely unacceptable’.
Greer further stated that while they made every possible diplomatic and professional effort to conduct negotiations behind closed doors, the continuous impact on the U.S. economy and trade relationship have reached such a level that it was becoming increasingly challenging to keep silent.
In an additional statement on Thursday, Treasury Secretary Scott Bessent stated that the current situation around trade talks with China was somewhat at a standstill. Though he envisioned more discussions in the upcoming weeks, he also acknowledged the complex nature of these talks, suggesting that direct interaction between the president and President Xi was likely requisite.
However, Thursday presented a new wrinkle in this complex situation when an appeals court reinstated a series of tariffs that a federal trade court had nullified only hours earlier. This decision brought fresh uncertainty to the future of extensive import taxes and it is expected that this case will eventually reach the Supreme Court.
Since the current President assumed office, the S&P 500 has experienced a modest decrease of around 2%. This small decline conceals otherwise significant weekly and daily changes. A report released on Friday revealed that consumer spending had slowed down from a 0.7% rate in March to a minimal 0.2% in April, signaling possible economic repercussions due to the ongoing tariffs.
Fitch Ratings analysts expressed in a note to their clients that these data are a clear indication of consumers tightening their belts in anticipation of tumultuous times. They added that this aligns with recent figures from the Bureau of Economic Analysis showing the highest savings rate since May 2024. A relatively positive April inflation report was released, but Fitch analysts predicted the Federal Reserve would likely interpret this as the brief quiet before potential turbulence, leading to cautious decisions regarding interest rates.