Wall Street’s bets that the US-China trade truce marked the end to an all-out tariff war drove the S&P 500 up over 3%, while sinking defensive corners of the market from bonds to gold and haven currencies. The dollar climbed the most since its November post-election rally.

The rebound in risk appetite and diminished expectations of a recession drove the stock benchmark above President Donald Trump’s April 2 “Liberation Day” level. A surge in big techs put the Nasdaq 100 back into a bull market just about a month after it plunged 20% from a previous record. Amid a potential reset in inflation expectations, Treasury yields climbed as traders lowered their Federal Reserve wagers to just two rate cuts in 2025.

For big investors shocked into defensive measures at the height of April’s chaos, the swift recovery in markets has been a mixed blessing. Shorting the dollar, going long stock volatility and piling on bets premised on multiple Fed rate cuts were among the most popular trades in mid-April. Each has taken severe lumps. Indeed, their unwinding may be adding fuel to the bounce-back.

After two days of high-stakes talks in Switzerland, trade negotiators from the world’s biggest economies announced Monday a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%.

“No one had these low China tariff rates on their bingo cards. This is a big positive surprise,” said Jeff Buchbinder at LPL Financial. “Risk remains that tariffs go back up from current levels as the pauses end, though taking worst-case scenarios off the table is reassuring.”

The S&P 500 breached its 200-day moving average. The Nasdaq 100 rallied 4%. The Dow Jones Industrial Average added over 1,000 points. A gauge of megacaps soared 5.7%. Trump said he spoke with Apple Inc.’s Tim Cook, just as the iPhone maker was reported to be considering price hikes. Drugmakers bounced on bets they averted the worst-case scenario as Trump targets price cuts.

The two-year yield climbed 11 basis points to around 4%. The Bloomberg Dollar Spot Index rose 1%.

“The larger-than-expected drop in the tariffs between the US and China, while temporary, and the establishment of a framework for continued discussion, is exactly what the stock market was hoping to see,” said Carol Schleif at BMO Private Wealth.

The risk-on move suggests that investors had not expected such a positive outcome to come so quickly, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. The deal is consistent her firm’s base-case that the effective US tariff on Chinese imports will settle around 30-40%.

“Investors will now be focused on signs that the temporary fix can be turned into a lasting agreement,” she said.

To Matt Maley at Miller Tabak, the news of a trade agreement between the US and China is certainly positive for the stock market. The question now is whether this change will be enough to help earnings growth reverse higher in a significant way or not.

“Think of this like a trade embargo being lifted, at least for now,” said Callie Cox at Ritholtz Wealth Management. “Tariffs are still high, Americans will likely feel the sting of higher prices, and companies probably won’t make different strategic decisions in the wake of this deal. But trade between the US and China could open up more, which means more shipping and fewer empty shelves (for now).”

“There’s still a very steep hill to climb to get a real agreement,” said Jamie Cox at Harris Financial Group. “The good news is that this pause gives US companies more time to adapt and to plan for contingencies should the trade talks go sideways again. Also, with any luck, the tax package may be across the finish line and investors will no longer have to worry about trade derailing tax.”

Investors who followed Trump’s advice on social media in the past month have enjoyed one of the biggest rallies in the S&P 500 under his leadership.

Having slumped on Trump’s “Liberation Day” tariff announcement, the benchmark soared in the month after he said it was “a great time to buy” on April 9 — hours before he paused some of the harshest levies in a century. He reiterated that on May 8, telling reporters the economic outlook warranted piling into stocks.

Sentiment toward the US stock market is improving, but it’s too early for investors to sound the all-clear, according to Morgan Stanley strategists.

The team led by Michael Wilson identified four factors needed to sustain a more durable rally, but saw progress in just two: “Optimism around a trade deal with China and stabilizing earnings revisions,” they wrote in a note on Monday.

“The other two items on our checklist — a more dovish Fed and the 10-year yield below 4% without recessionary data — have yet to materialize.”

With good news on the trade front giving a boost to stocks at the start of the week, it will be up to inflation data, retail sales, and earnings to sustain the momentum, according to Chris Larkin at E*Trade from Morgan Stanley.

“There’s still debate about how much tariffs have already disrupted supply chains and potentially slowed growth,” Larkin said. “While numbers that feed into the stagflation narrative could certainly derail the bullish mood, the economy still appears to be on solid ground, as Jerome Powell noted last week.”

Swaps that track upcoming central bank meetings showed just 56 basis points of easing by December, down from near 75 basis points last week. Traders still see the first quarter-point cut in September.

Fed Governor Adriana Kugler said the Trump administration’s tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction in levies on China.

Trade policies are evolving and are likely to continue shifting, even as recently as this morning,” Kugler said Monday in remarks prepared for an event in Dublin. “Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels.”

Corporate Highlights:

—Eli Lilly & Co.’s obesity drug Zepbound helped people trim about two inches more off their waists than Novo Nordisk A/S’s Wegovy in the first head-to-head study of the rival medicines.

—NRG Energy Inc. agreed to acquire a fleet of natural gas-fired power plants from LS Power Equity Advisors LLC for about $12 billion including debt, betting the fuel will be crucial to meet electricity demand from data centers.

—CrowdStrike Holdings Inc. Chief Executive Officer George Kurtz disclosed last month that he’d gifted over $1 billion worth of his company’s stock to undisclosed recipients, sharply reducing his influence over the company in an unusual move for a tech founder.

—SoftBank Group Corp.’s plans to invest $100 billion in artificial intelligence infrastructure in the US have slowed, with economic risks stemming from Washington’s tariffs holding up financing talks.

Some of the main moves in markets:

Stocks

—The S&P 500 rose 3.3% as of 4 p.m. New York time

—The Nasdaq 100 rose 4%

—The Dow Jones Industrial Average rose 2.8%

—The MSCI World Index rose 2.2%

—Bloomberg Magnificent 7 Total Return Index rose 5.7%

—The Russell 2000 Index rose 3.4%

Currencies

—The Bloomberg Dollar Spot Index rose 1%

—The euro fell 1.4% to $1.1093

—The British pound fell 1% to $1.3178

—The Japanese yen fell 2.1% to 148.41 per dollar

Cryptocurrencies

—Bitcoin fell 2.3% to $101,874.95

—Ether fell 1.9% to $2,461.81

Bonds

—The yield on 10-year Treasuries advanced nine basis points to 4.47%

—Germany’s 10-year yield advanced nine basis points to 2.65%

—Britain’s 10-year yield advanced eight basis points to 4.64%

Commodities

—West Texas Intermediate crude rose 1.3% to $61.84 a barrel

—Spot gold fell 2.7% to $3,234.48 an ounce

(With assistance from Margaryta Kirakosian, Sujata Rao, Julien Ponthus, Anand Krishnamoorthy and Vildana Hajric.)

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