Stock Market Already Pricing in Trade War Victory Despite No Deals

More than a month has passed since President Donald Trump’s tariffs sparked chaos in financial markets, and there’s been no news of a trade deal. But markets are acting like the trade war may already be won, and investors may be getting overly optimistic, market pros say.

The S&P 500 is up 13% since closing at a low of 4,982 on April 8. While relatively upbeat earnings and robust macroeconomic data have helped stocks, commentators also say that the market is increasingly pricing in a swift end to trade tensions — and a win for Donald Trump and the US.

But investors need to tread carefully when it comes to baking in assumptions about trade policy, market experts told Business Insider.

“No way you’re going to make a deal in a couple of weeks. Now, maybe they’ll come up with some sort of framework for negotiation that could one day lead to a deal, and maybe Trump will, being the master marketer, claim some sort of victory if they achieve that. But actual trade deals? No, I don’t think that’s very likely,” Peter Berezin, chief global strategist at BCA Research, said.

Stocks are likely rising on “buy-the-dip” thinking among investors, who haven’t seen a true bear market in more than a decade, Berezin said.

Unless Trump significantly dials back tariffs over the next few weeks, he also thinks the economy will likely enter a “deep slowdown,” given the pressures tariffs will put on consumers.

Michael Brown, a senior research strategist at Pepperstone, also thinks the rally since April is getting ahead of itself. He pointed to risks weighing on the US economy, such as inflation and downward growth risks stemming from trade policy.

“We’re also still dealing with a situation where, despite the fact that there are these various talks and negotiations going on, concrete progress is still very, very thin on the ground,” Brown told BI.

Investors are particularly keen to see a trade agreement reached with China, but Brown also sees challenges there, given that neither China nor the US will want to be seen as the “weaker party” in negotiations.

Brown predicted tariffs could come down but still be materially higher than anything that was in place before. He said he believes tariffs on China will ultimately be 50%-60%.

Still, top commentators from around the market this week have said they see the US coming out on top, and that markets are positioning for that outcome.

Kyle Bass, one of the investors featured in “The Big Short,” said in April that he believes the US has the upper hand in trade negotiations with China. That’s because Beijing is likely feeling more pain from tariffs than the US, given the imbalance of trade between the two nations, with the US importing more from China than China imports from the US.

“We are the largest consuming nation in the world. Certainly, we can outlast China,” Bass said.

Meanwhile, David Kostin, the chief US equity strategist at Goldman Sachs, said he believes markets have gone from pricing in one of the worst-case scenarios to the best-case with regard to tariffs. Based on the performance of cyclical stocks relative to defensive stocks, the market appears to be eyeing economic growth of more than 1% this year, Kostin told CNBC this week, higher than the bank’s baseline forecast for GDP.

“The equity market is pricing really the very best outcome that we anticipate in our baseline forecast,” Kostin said. “Basically had that reverse in a matter of a week or two.”

The bargaining table

Trump, who implemented a 90-day pause on most reciprocal tariffs after days of historic market volatility, has suggested that the US is making progress in trade negotiations, though no deals have been announced.

The president has insisted negotiations are progressing without offering further details.

“Everyone says, ‘When, when, when are you going to sign deals?'” Mr. Trump said, pointing to Commerce Secretary Howard Lutnick. “We don’t have to sign deals. We could sign 25 deals right now, Howard, if we wanted to. We don’t have to sign deals.”

When questioned about progress on trade deals by reporters, he added: “I wish they’d stop asking how many deals are you signing this week.”

US Treasury Secretary Scott Bessent told CNBC on Monday that trade deals could come as soon as this week, as 17 of the US’s top 18 trading partners had come forward with “very good trade proposals.”

Regarding China, Bessent said he believed the two nations could “see substantial progress in the coming weeks.” The Treasury Secretary and other US officials are set to meet with their Chinese counterparts in Switzerland over the weekend.