Stocks rebound as US Treasury Secretary says China trade war is unsustainable

By John Towfighi, CNN

New York (CNN) — Treasury Secretary Scott Bessent told investors Tuesday that the US-China trade war is unsustainable and he expects the battle to de-escalate, a person familiar with the matter confirmed to CNN, giving a brief boost to a Wall Street rally that had taken shape this morning.

US stocks had broadly gained Tuesday as investors waded into the market after a steep Monday sell-off. Stocks extended their gains midday after Bessent told investors at a closed-door event hosted by JPMorgan Chase that he expects de-escalation in the trade spat with China. The event was first reported by Bloomberg.

The Dow surged to gain a total of more than 1,000 points and the S&P 500 and Nasdaq Composite hit their highest levels of the day after Bessent’s remarks.

However, stocks gave back some of their gains in the early afternoon. White House press secretary Karoline Leavitt told reporters on Tuesday that she had spoken with President Donald Trump and Director of the National Economic Council Kevin Hassett about the Federal Reserve, and both expressed doubt about the Fed’s decisions on interest rates — reigniting concerns that the White House might try to undermine the Fed’s independence.

The Dow was up 775 points, or 2%, during afternoon trading. The S&P 500 rose 1.9% and the tech-heavy Nasdaq gained 2.2%.

The Nasdaq and Dow are looking to snap a four-day losing streak. All three major indexes are on track for their worst month since 2022 and the Dow is on track for its worst April since 1932, according to FactSet data.

Investors have been on edge as uncertainty lingers about trade negotiations and Trump has ratcheted up his criticism of Federal Reserve Chair Jerome Powell.

Stocks were coming off a day sharply in the red as investors assessed Trump’s continued tirade against Powell for not cutting interest rates — a complaint he has levied multiple times. The Fed’s independence is a hallmark of the central bank and market watchers have been unnerved by the president’s continued verbal assault on the Fed chair.

“A multi-front trade war is by itself a lot for stocks to handle so adding a Fed independence crisis on top of it has markets understandably jittery,” said Jeff Buchbinder, chief equity strategist at LPL Financial, in a Monday note.

While many experts say the president does not in fact have the power to fire the Fed chief just due to policy differences, Trump has made clear he’s willing to break with norms and precedent.

Mohit Kumar, chief economist and strategist for Europe at Jefferies, said in a Tuesday note that “it will be nearly impossible for Trump to remove Powell without cause” and it is unlikely Trump will have broader political support to oust Powell before his term ends in 2026.

“Moreover, as recent events have shown, bond market is the pressure point for Trump,” Kumar said. “Any attempt to subjugate the Fed’s independence will be met by a strong negative bond market reaction and Trump will need to back down.”

US stocks, government bonds and the dollar all sold off on Monday in a continuation of a trend that has unnerved Wall Street. Typically, when stocks sell off during moments of uncertainty, investors seek refuge in safe havens like Treasuries and the dollar. Yet that conventional wisdom has been breaking down this month during bouts of sell-offs in all three American asset classes.

The yield on the 10-year Treasury note ticked down and the US dollar slightly gained Tuesday, signaling relative stability after Monday’s massive sell-off.

Gold on Tuesday briefly hit a fresh record high above $3,500 a troy ounce. The yellow metal has soared more than 30% this year, surpassing its gain of 27% across last year. Investors have flocked to gold amid broad uncertainty about the outlook for the global economy.

Trump’s tariffs and countermeasures by America’s trading partners will likely deal a heavy blow to economic growth worldwide, with US prosperity hit particularly hard, according to the International Monetary Fund.

Global economic growth is expected to slow down to 2.8% this year, from 3.3% last year and significantly below the historical average, the IMF forecast in its World Economic Outlook on Tuesday. The slowdown expected in the United States is even steeper, with its economy likely to grow only 1.8%, compared with 2.8% in 2024.

Wall Street this week will be on edge for potential signs of progress in trade talks but also focused on a slate of earnings results for the first quarter.

Investors today will likely be attuned to Tesla’s (TSLA) earnings results which are scheduled to be released after the closing bell. Elon Musk’s electric vehicle company has cratered in market value this year as its stock has tumbled more than 40%. The decline in Tesla stock comes amid backlash against Musk’s role in the US government and slumping sales in Europe.

“Extreme fear” was the sentiment driving markets on Tuesday, according to CNN’s Fear and Greed index. The index has been staunchly in “extreme fear” this month.

This is a developing story and will be updated.

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CNN’s Matt Egan and Olesya Dmitracova contributed reporting.