US Stocks Stumble as US-China Trade Truce Underwhelms Market
Initial pre-market optimism fades as the limited scope of the agreement, mixed tech earnings, and a cautious Fed temper investor enthusiasm.
A wave of initial optimism on Wall Street gave way to caution Thursday morning as U.S. stock futures faltered, reversing earlier gains after the details of a new U.S.-China trade truce failed to impress investors seeking a major de-escalation in tensions.
In early pre-market trading, futures tied to the Dow Jones Industrial Average fell by as much as 200 points, erasing a prior gain of over 100 points. S&P 500 futures dipped approximately 0.2%, while Nasdaq 100 futures saw a similar decline of around 0.3%. The reversal suggests that the long-awaited agreement, while a step away from further conflict, was not the significant breakthrough the market had priced in earlier in the week.
The diplomatic agreement, reached ahead of a key summit, centers on a narrow set of issues. The U.S. agreed to halve tariffs on Chinese goods related to the fentanyl crisis from 20% to 10% and to postpone contentious discussions on port fees for Chinese vessels. In exchange, Beijing has reportedly committed to restarting purchases of U.S. agricultural products, including soybeans, and to cooperate on stemming the flow of fentanyl, according to reports from The Economic Times.
While the deal averts an immediate escalation, it stops short of addressing the core structural issues—such as technology competition, intellectual property, and the broader trade blacklist—that have kept a ceiling on market sentiment for months. Market analysts quickly characterized the agreement as more of a "tactical pause" than a fundamental reset in the complex trade relationship, as noted by Investing.com.
The muted reaction was compounded by a busy week of corporate earnings and monetary policy updates. Mixed results from technology giants created significant crosscurrents. While Alphabet shares jumped on strong revenue, disappointing reports from Microsoft and Meta Platforms weighed on the tech-heavy Nasdaq, highlighting that market fundamentals remain a primary driver.
Further tempering enthusiasm was the Federal Reserve's latest policy stance. Although the central bank delivered a widely expected 25-basis-point interest rate cut on Wednesday, Fed Chair Jerome Powell adopted a cautious tone, signaling that a further rate cut in December is "not a foregone conclusion," according to TipRanks. This pivot has forced investors to recalibrate their expectations for future monetary easing, removing a key pillar of support for equity valuations.
Sectors most sensitive to trade relations, such as semiconductors and heavy industrials, saw early gains evaporate. The limited scope of the truce suggests that supply chain uncertainties and tariff risks, while slightly diminished, remain a significant headwind for companies with heavy exposure to China.
Looking ahead, investors are now shifting their focus back to domestic economic data and the ongoing earnings season. While the trade truce provides a temporary floor against further escalation, the market's lukewarm reception indicates that a more comprehensive and durable agreement is needed to sustainably boost investor confidence and unlock further gains.