In the early hours of Wednesday in Beijing, all three major U.S. stock indices closed higher. Investor sentiment improved with the Federal Reserve maintaining rates and the upcoming high-level trade talks between China and the U.S. However, the market continues to evaluate Federal Reserve Chairman Powell's hawkish remarks on inflation, tariffs, and employment, as well as whether there will be a turnaround in U.S.-China trade relations.
U.S. Stocks Rise with Noticeable Divergence in Tech
At the close, the Dow Jones Industrial Average rose 284.97 points, or 0.70%, to 41,113.97 points; the S&P 500 increased by 0.43% to 5,631.28 points; the Nasdaq Composite added 48.50 points, or 0.27%, closing at 17,738.16 points.
In sectors, Disney (DIS) surged 10.7% due to streaming user growth and revenue exceeding expectations, standing out as a highlight of the day. On the other hand, Alphabet (Google's parent company) saw its stock drop 7.3% after news that Apple might end the default search cooperation and develop an AI-driven search engine. Uber fell 2.54% due to lower-than-expected revenue.
Federal Reserve Holds Rates Steady, Warns of Tariff Risks
The Federal Reserve, at its May meeting, kept the interest rate range steady at 4.25% to 4.50% for the third consecutive time, in line with market expectations. The FOMC statement emphasized that inflation and unemployment risks are rising simultaneously, which increases economic uncertainty, and decided to continue balance sheet reduction at the slower pace announced in March.
Powell noted at the press conference that the impact of tariffs is "far beyond expectations" and maintaining high tariff policies could result in sustained high inflation and weak employment. He also stated that recent consumer and business inflation expectations are rising, largely due to tariff pressures, "In this context, our policy must be more cautious."
Expectations for rate cuts were subsequently delayed, with Deutsche Bank's chief U.S. economist, Matthew Luzzetti, predicting the Federal Reserve's first rate cut this year will be pushed to December.
China and the U.S. to Resume High-Level Trade Talks, Sending Signals of Easing Tensions
According to reports from China's Ministry of Foreign Affairs and Ministry of Commerce on the 7th, China and the U.S. will hold high-level trade talks this week, with China's Vice Premier He Lifeng and U.S. Treasury Secretary Bessent meeting in Switzerland. This will be the first direct high-level communication since Trump announced higher tariffs last month.
China emphasized opposition to U.S. tariff overuse and noted that this dialogue is in response to strong calls from global markets, industry, and consumers. Analysts generally believe that while this meeting may not result in a groundbreaking agreement, it marks a preliminary easing of the trade war situation.
Risks of U.S.-EU Tariff War Escalation Persist, EU Plans to Announce Countermeasures
Meanwhile, the EU is closely preparing a new round of countermeasures against U.S. tariffs. EU Trade Commissioner Sefcovic stated that a detailed draft of counter-tariffs will be announced on Thursday, emphasizing that negotiation remains the preference, but the EU must be prepared for all scenarios.
Currently, the Trump administration imposes tariffs as high as 145% on most Chinese goods and maintains a 25% tariff on EU metal products. In response, the EU has paused the first round of retaliatory tariffs involving €21 billion worth of goods, and these measures might be reactivated if negotiations do not succeed.
Market Outlook: Short-Term Optimism but Caution Over Policy Uncertainty
Although the market is currently rebounding due to the Federal Reserve's decision not to further tighten, and U.S.-China talks are seen as a positive signal, the overall environment remains dynamic. From global tariff policies to inflation paths, from trade negotiation outcomes to the Federal Reserve's future policy moves, investors need to stay wary of the intersecting impacts of multiple risks.
Economists warn that U.S. companies are facing supply chain and cost pressures due to high tariffs. The U.S. first-quarter GDP has recorded a decline of -0.3%, marking the first contraction in three years, with inflation risks and recession clouds still looming over the market.
