(Bloomberg) -- Wall Street investors hoping for a de-escalation in the US-China tariff standoff drove stocks higher, despite bets the Federal Reserve will keep signaling its wait-and-see stance until there's more clarity on the impacts of President Donald Trump's trade policies.
As the world's two largest economies prepared to hold their first confirmed trade talks since Trump unleashed his sweeping tariff war, equities halted a two-day slide. Short-term Treasury yields rose as traders trimmed wagers on rate cuts, seeing around three quarter-point reductions in 2025 starting in July.
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With the central bank expected to keep its benchmark rate steady at 4.25%-4.50% on Wednesday, traders will be scrutinizing comments by Fed Chair Jerome Powell for insight into officials' interpretation of recent data and whether Trump's economic policies are prompting any change in view on when to ease policy.
"The tariff situation is extremely fluid and unpredictable, therefore it would be irresponsible for the Fed to attempt to be responsive to tariffs when the situation can change drastically and their actions could lack the intended impacts or even worse compound a detrimental effect," said Chris Brigati, chief investment officer at SWBC.
The Fed's rate decision will be released at 2 p.m. in Washington. Powell will hold a post-meeting press conference 30 minutes later.
The S&P 500 rose 0.5%. The Nasdaq 100 added 0.4%. The Dow Jones Industrial Average gained 0.5%. Walt Disney Co. jumped 10% after raising its outlook. Advanced Micro Devices Inc. gave a strong revenue forecast. Super Micro Computer Inc. sank on a disappointing projection. Uber Technologies Inc. reported weaker-than-expected quarterly gross bookings.
The yield on 10-year Treasuries was little changed at 4.29%. The Bloomberg Dollar Spot Index rose 0.2%.
US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel later this week to Switzerland for trade talks with China led by Vice Premier He Lifeng. The travel was announced in statements Tuesday from the Chinese and US governments.
"As tariff uncertainty likely eases in the coming months and deals emerge between the US and its trading partners, we see scope for US equities to rally as interest rates fall," said Solita Marcelli at UBS Global Wealth Management.
Brigati at SWBC noted that Wednesday's Fed rate meeting is the first one since the tariff situation escalated in early April, and we may receive some clues from Powell at the press conference regarding the potential impact of the trade war on the economy.
"If Powell's statements lean dovish, he may be suggesting a more accommodative stance and concerns about the employment picture, however, a more hawkish inclination suggests continued restrictiveness and concerns about inflation going forward," Brigati said. "Regardless, more clarity and insight will certainly be helpful for the markets to determine the future path forward."
"Powell may qualify his hawkishness by noting the current degree of uncertainty, and emphasizing that the Fed is data-dependent," said Anna Wong at Bloomberg Economics. "But that won't mask the shift in his underlying message, which is that he's ready to stand his ground on not cutting rates – even if that draws President Trump's ire."
Powell is also almost certain to face questions about the pressure being leveled at him by President Trump, and possibly about the president's threats to fire him. Trump has backed away from the latter, repeating in an interview taped last week and aired on Sunday that he had no intention of seeking to dismiss the chair.
Options traders are pricing in a larger-than-usual "Fed day" move in the S&P 500 on Wednesday.
The one-day options straddle on the SPDR S&P 500 ETF Trust (SPY) is implying a 1.1% move on the day, slightly higher than the average implied move of 0.9% over the past 10 Fed meetings dating back to the beginning of last year.
A survey conducted by 22V Research shows that 29% of investors polled expected a "risk-off" reaction to the Fed decision while 7% said "risk-on."
"Our survey respondents think the current tariff environment will still lead to 50 basis points of cuts in 2025," said Dennis DeBusschere, founder of 22V. "When asked if there is a level of the unemployment rate below which the Fed would avoid cutting rates, respondents were split between 4.5-4.7% and "they will cut regardless."
Corporate Highlights:
Marvell Technology Inc. cut the high end of its revenue forecast and postponed an investor day event, citing the "uncertain" economy.
Rivian Automotive Inc. said full-year deliveries will decline more sharply than it anticipated just a month ago, citing risks Trump's trade war will further dampen demand for pricey electric vehicles.
CrowdStrike Holdings Inc. is cutting about 500 jobs, representing about 5% of its global workforce, as it works toward a goal of generating $10 billion in annual recurring revenue.
The European Union will propose tariffs on Boeing Co. aircraft and US-made cars if talks with Trump's administration fail to de-escalate a brewing trade conflict, according to people familiar with the deliberations.
Steven Madden Ltd. pulled its sales and profit outlook for the year amid Trump's trade war. The shoe retailer forecast almost 20% growth a few months ago.
Barrick Mining Corp., one of the world's top gold producers, reported higher-than-expected earnings, with production coming in at the top end of the guidance range at a time of record prices.
Bunge Global SA saw profits shrink less than expected in the first quarter as the company weathered the impact of tariff uncertainty on crop trading.
WeightWatchers, known for its diet programs once endorsed by celebrities including Oprah Winfrey, has filed for bankruptcy after struggling to compete with drugs like Ozempic.
Novo Nordisk A/S surged on expectations that some competition for its blockbuster obesity shot Wegovy will subside, paving the way for a sales rebound later this year.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.5% as of 10:19 a.m. New York time
- The Nasdaq 100 rose 0.4%
- The Dow Jones Industrial Average rose 0.5%
- The Stoxx Europe 600 fell 0.5%
- The MSCI World Index rose 0.3%
- Bloomberg Magnificent 7 Total Return Index rose 0.6%
- The Russell 2000 Index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.1357
- The British pound was little changed at $1.3366
- The Japanese yen fell 0.6% to 143.34 per dollar
Cryptocurrencies
- Bitcoin rose 2.7% to $97,232.89
- Ether rose 3% to $1,829.12
Bonds
- The yield on 10-year Treasuries was little changed at 4.29%
- Germany's 10-year yield declined six basis points to 2.48%
- Britain's 10-year yield declined five basis points to 4.46%
Commodities
- West Texas Intermediate crude fell 0.3% to $58.89 a barrel
- Spot gold fell 1.4% to $3,382.37 an ounce
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