Market Recap: Stocks Rally on U.S.-China Trade Talk Hopes as Fed Decision Looms

By / / Market Update

Based on the information gathered, I’ll now write the market recap article focusing on the current market indexes, upcoming events, and major stock news for May 7, 2025.

Major Indexes Rebound as Trade Tensions Ease

The U.S. stock market staged a significant rebound on Wednesday, May 7, 2025, as investors welcomed news of upcoming trade negotiations between the United States and China. After two consecutive days of losses, major indexes climbed higher, buoyed by optimism that trade tensions might ease following the announcement of high-level talks scheduled for this weekend in Switzerland.

As of market close, the Dow Jones Industrial Average gained 196 points (0.48%), while the S&P 500 advanced 0.49% and the Nasdaq Composite rallied 0.5%. This positive momentum came after Tuesday’s selloff when the Dow lost nearly 390 points (1%) and both the S&P 500 and Nasdaq fell approximately 0.8% and 0.9% respectively.

The market’s upward movement was primarily driven by news that U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer would meet with their Chinese counterparts this weekend in Switzerland. This development signals potential progress in resolving trade disputes following President Trump’s tariff announcements last month that had sent markets into turbulence.

Fed Decision Takes Center Stage

Today’s market activity occurred against the backdrop of the highly anticipated Federal Reserve interest rate decision scheduled for 2 p.m. ET. The central bank is widely expected to maintain its current target rate of 4.25% to 4.5%, with CME’s FedWatch tool indicating a nearly 97% probability that rates will remain unchanged.

Investors are closely monitoring Fed Chair Jerome Powell’s post-decision press conference for insights into the central bank’s view on inflation, economic growth, and the potential impact of tariffs on monetary policy. The Fed faces a complex balancing act as it navigates concerns about tariff-driven inflation while addressing signs of economic slowdown.

Market participants currently anticipate the first rate cut of 2025 to come in July, with approximately a one-in-three probability of a cut at the June 17-18 meeting. However, uncertainty surrounding trade policy and its economic implications has complicated the Fed’s decision-making process.

China Announces Stimulus Measures

Adding to today’s positive market sentiment, China announced sweeping economic stimulus measures, including cuts to its policy rate and a reduction in the reserve requirement ratio for banks. The People’s Bank of China cut the seven-day reverse repurchase rate to 1.4% from 1.5% and announced plans to trim the reserve requirement ratio by half a percentage point, which will release approximately 1 trillion yuan ($139 billion) in long-term liquidity.

These measures aim to support China’s economy amid renewed trade tensions with the United States and have contributed to gains in Asian markets, with Hong Kong’s Hang Seng index jumping over 2% and China’s CSI 300 rising 1%.

Tech and Auto Stocks in Focus

Several major companies made headlines today based on earnings reports and market developments:

Advanced Micro Devices (AMD) jumped nearly 2% following stronger-than-expected earnings results. The chipmaker’s performance contrasts with the recent struggles of other semiconductor companies facing supply chain challenges.

Apple (AAPL) continues to face pressure after tumbling nearly 4% last Friday following its earnings report. Despite reporting better-than-expected March-quarter results with earnings of $1.65 per share (up 8% year-over-year) on sales of $95.4 billion (up 5%), investors remain concerned about the impact of tariffs on hardware sales and legal challenges to its services business.

Microsoft (MSFT) has shown resilience, advancing 2.8% in recent trading after crushing Wall Street’s targets for its fiscal third quarter. The company reported earnings of $3.46 per share on sales of $70.07 billion, significantly exceeding analyst expectations.

Tesla (TSLA) has been volatile, recently moving up 3.8% but still trading around 40% below its all-time high set in December. The EV manufacturer’s Q1 earnings showed a 40% drop in EPS to 27 cents per share while revenue fell 9% to $19.335 billion.

Nvidia (NVDA) jumped 3% in recent trading as it attempts to move decisively above its 50-day moving average for the first time since February 20.

In other corporate news, Novo Nordisk lowered its full-year sales growth forecast amid weaker sales of its blockbuster Wegovy weight loss drugs, while BMW reported a decline in its carmaking margin to 6.9% as German automakers struggle with Chinese competition and tariff impacts.

Looking Ahead: Key Events to Watch

As markets navigate this period of uncertainty, several upcoming events could significantly impact trading in the days ahead:

1. **Fed Chair Powell’s Press Conference**: Today’s comments from Jerome Powell will be scrutinized for clues about the Fed’s assessment of economic conditions and the potential timeline for interest rate cuts.

2. **U.S.-China Trade Talks**: The weekend meetings between U.S. and Chinese officials in Switzerland could provide crucial signals about the direction of trade policy and potential tariff adjustments.

3. **Economic Data Releases**: Upcoming reports, including consumer credit data expected today, will offer insights into economic health and consumer behavior amid rising uncertainty.

4. **Corporate Earnings**: Major companies including Disney, Carvana, and Uber are scheduled to report earnings, providing further indications of business performance across various sectors.

Market Outlook

While today’s market gains reflect renewed optimism about trade negotiations, analysts caution that volatility may persist until there is greater clarity on trade policy and its economic impact. The combination of tariff concerns, Fed policy decisions, and mixed economic signals suggests that markets could remain “choppy” into the second half of the year.

However, strong retail investor participation continues to provide support for the market. According to Bank of America data, individual private clients have been net buyers for 21 consecutive weeks, a record buying streak that may help offset institutional selling pressure.

As the market digests today’s developments and awaits the Fed’s decision, investors should remain vigilant about potential shifts in trade policy, inflation trends, and signs of economic slowdown that could influence market direction in the coming weeks.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. We are not financial professionals. The authors and/or site operators may hold positions in the companies or assets mentioned. Always do your own research before making financial decisions.