The Dow Jones Industrial Average (DJIA) experienced a remarkable surge on Monday, climbing over 1,100 points to surpass 42,400 for the first time since early April. The rally was fueled by news of significant (albeit temporary) reductions in tariffs between the United States and China, sparking investor optimism that the Trump administration would continue to adjust its trade policy stance.
Markets Receive Temporary Tariff Relief
The US and China reached a new agreement to ease tariffs on imports from both countries for the next 90 days. The US will maintain a 10% “universal” tariff, along with an additional 20% surcharge related to the fentanyl crisis. Despite significant US investments in border control and policing, the Trump administration has consistently blamed foreign governments for the opioid epidemic. Meanwhile, China has agreed to reduce tariffs on US goods to 10% during the 90-day period.
This tariff relief comes at a pivotal moment, just as the US prepares to release inflation data that will reflect the impact of the Trump administration’s “reciprocal” tariff policy. The US Consumer Price Index (CPI) for April will be released on Tuesday, with market expectations for an increase in both headline and core inflation figures. Year-over-year CPI is expected to remain stable, with core CPI predicted to hold steady at 2.8%.
Inflation and Interest Rate Expectations
Core CPI inflation has remained above the Federal Reserve’s 2% target for four consecutive years, despite a significant decrease from a peak of 6.6% in 2022. The Fed has struggled to reduce interest rates as swiftly as markets had hoped. Policymakers have noted that progress on lowering inflation has largely stalled, which has led to a sharp reduction in expectations for a rate cut in the near term.
Rate traders now foresee the Fed maintaining current policy rates until at least September. According to the CME’s FedWatch Tool, there is a 60% probability that the Fed will keep rates unchanged in July, a stark contrast to the optimism for a quarter-point rate cut just a week ago.
Dow Jones Price Outlook
Monday’s tariff-driven rally pushed the Dow Jones back above its 200-day Exponential Moving Average (EMA) at 41,500, marking the first time since early April that the index has reclaimed this level. The DJIA has recovered nearly 16% since bottoming out at 36,600 following the post-tariff announcement drop on April 2. However, the index remains 6% away from reaching its all-time high above 45,000.
