Despite the absence of any finalized trade deals, equity markets appear to be pricing in a clear U.S. victory in the ongoing trade negotiations, prompting concern among investment strategists that investors may be overestimating the likelihood of a near-term resolution.
Since the sharp April selloff, the S&P 500 has rebounded more than 13% from its low of 4,982 on April 8, with risk-on sentiment buoyed by better-than-expected earnings reports and resilient economic indicators. However, analysts caution that this recovery is also being fueled by investor expectations of de-escalation in trade tensions—a scenario that may be premature and overly optimistic.
Peter Berezin, chief global strategist at BCA Research, warns that markets are acting as though a favorable outcome is imminent despite no substantive progress on trade policy. “There’s no way a comprehensive deal materializes in a matter of weeks,” Berezin said. “At best, the U.S. might announce a vague negotiation framework that the administration could spin as a victory. But actual structural agreements? Unlikely.”
Berezin also sees this rally as emblematic of “buy-the-dip” behavior by market participants conditioned by more than a decade without a prolonged bear market. He cautions that unless the administration meaningfully reduces tariffs soon, the cumulative pressure on consumers could contribute to a significant economic deceleration.
Michael Brown, senior research strategist at Pepperstone, echoes those concerns. While acknowledging that talks between the U.S. and China are ongoing, he emphasized that tangible progress remains scarce. “Despite the flurry of negotiations, the substance behind them is thin,” Brown said. “The risk backdrop—ranging from persistent inflationary pressures to policy uncertainty—hasn’t improved meaningfully.”
Brown added that even if tariffs are eventually rolled back, they are unlikely to return to pre-trade war levels. “We’re probably looking at a normalized tariff regime that’s materially higher—perhaps 50% to 60% above prior baselines, especially on Chinese imports,” he said.
For advisors and investment professionals, the current rally demands a closer look at how much of the market’s optimism is grounded in realistic policy expectations. While there’s potential upside if negotiations lead to a durable agreement, the current market pricing suggests a best-case scenario is already embedded into valuations.
Nonetheless, some market voices remain confident that the U.S. holds a strategic advantage in the trade standoff. Hedge fund manager Kyle Bass, known for his appearance in “The Big Short,” has argued that the U.S. is structurally better positioned to weather a prolonged trade conflict. “We are the largest consuming economy in the world,” Bass said. “Our economic resilience and the trade imbalance with China give us significantly more leverage.”
That sentiment is being echoed across segments of the market, where investors have rotated into cyclical sectors on expectations of stronger economic growth. David Kostin, chief U.S. equity strategist at Goldman Sachs, noted that relative performance between cyclicals and defensives indicates the market is now pricing in GDP growth of over 1% for the year—above Goldman’s base-case forecast.
“In just a few weeks, investor sentiment has shifted from expecting worst-case trade disruptions to assuming a favorable resolution,” Kostin said in a recent interview. “The equity market appears to be embedding the most optimistic scenario we currently forecast.”
While such bullish sentiment can support further gains in the short term, Kostin underscored the need for discipline. “If reality fails to deliver on these expectations—if tariffs remain or talks falter—investors may face a sharp reversion.”
Adding to the uncertainty is the lack of transparency from the Trump administration. Despite floating the possibility of breakthroughs, President Trump has provided few details. After suspending most retaliatory tariffs for 90 days in the wake of severe market turbulence, Trump has made public remarks suggesting the U.S. doesn’t need to sign trade agreements to be in a strong position.
“We could sign 25 deals right now if we wanted to,” Trump said during a recent event, gesturing toward Commerce Secretary Howard Lutnick. “But we don’t have to. We’re not desperate to sign anything.”
When pressed by reporters about the status of trade negotiations, Trump deflected. “I wish they’d stop asking how many deals we’re signing this week,” he said.
Meanwhile, Treasury Secretary Scott Bessent offered a more optimistic timeline in an interview with CNBC. He indicated that 17 of the U.S.’s top 18 trading partners have submitted what he described as “very good trade proposals,” suggesting that progress may be closer than it appears.
Regarding China specifically, Bessent noted that significant discussions are scheduled to continue, with key U.S. and Chinese officials expected to meet in Switzerland over the weekend. “We believe substantial progress could emerge in the coming weeks,” he said.
For wealth advisors and portfolio managers, these competing narratives underscore the importance of scenario planning and risk calibration. On one hand, if the U.S. does secure more favorable trade terms—particularly with China—cyclical sectors and global equities could benefit. On the other hand, if talks break down or stall, the current rally may prove to be a head fake, particularly in sectors most sensitive to global trade.
Advisors should also be cautious of behavioral overreach among retail clients, many of whom may be tempted to chase returns based on misleading headlines or assumptions of quick political victories. Historically, markets have demonstrated a tendency to overshoot on both optimism and fear during geopolitical negotiations. Portfolio positioning that anticipates a range of outcomes, rather than a singular “deal is done” narrative, will be better equipped to navigate the volatility ahead.
Moreover, elevated tariff regimes—even if lower than current peak levels—could have long-term implications for supply chains, inflation expectations, and profit margins across multiple industries. These factors are not likely to be resolved in a matter of weeks and may instead mark a structural shift in the global trade environment.
While it is possible that Washington and Beijing may strike an agreement or at least formalize a pathway toward resolution, RIAs should resist the temptation to base asset allocation decisions solely on near-term speculation. Instead, a focus on diversification, quality fundamentals, and client-specific risk tolerance remains the most prudent course of action.
In the meantime, close monitoring of diplomatic developments, corporate earnings guidance, and economic data will be essential to validate or challenge the market’s current assumptions. Advisors should prepare clients for both continued volatility and the potential for asymmetric outcomes as the geopolitical narrative evolves.
