De-escalation trend continues

Over the weekend, the US and China reached a deal to substantially lower tariffs on one another for a period of 90 days in order to allow for a more conducive backdrop to construct a broader agreement. This marked de-escalation (both countries reduced tariffs by 110%) is a much better result than the Street had been expecting. As such, US stocks are trading up ~3% early Monday.

As we noted on April 28, we believe we are past the worst of this crisis. Multiple “signals” among the “noise” during the last three weeks give us this confidence:

Treasury Secretary Scott Bessent said the tariff standoff with China is “unsustainable,” expected “de-escalation”

President Trump said he has “no intention” of firing Fed Chair Powell

President Trump said Chinese tariffs will come down “substantially”

Announced trade deal with the UK

And now: a substantial tariff climb down by both the US and China allowing a better tone to strike a long-standing deal

To be clear, the uncertainty since early April has done damage. We believe an economic slowdown is in process. And yet, its barely visible in the data, thus far. The labor market has remained solid and continues to defy expectations. Inflation data has largely been in stasis ~2.5%–3%, and the consumer (buoyed by the labor market) has been sound. The next several months should be more telling, though, as the effects of the uncertainty make their way into the economy, in our opinion.

That said, markets priced a worst-case scenario when stocks were down 21% (intra-day) on April 11 from the Valentine’s Day peak. It was later that day that the president initiated his de-escalation efforts with the 90-day pause on all countries. Moving forward, we expect more conciliatory signals from the administration among the noise, and a pivot in focus toward more business- and market-friendly policies like tax and de-regulation in 2H 2025.

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