Stock ETFs Surge Following China Tariff Agreement; Bonds and Gold Struggle
By Ron Day
Published: May 13, 2025, 2:30 AM
A significant turnaround in U.S. equity markets was observed on Tuesday as stock exchange-traded funds (ETFs) surged following an agreement between the U.S. and China to roll back tariffs. This decision, which temporarily reduces duties on Chinese imports, reignites hopes for improved trade relations and signals a potential end to the trade tensions that have adversely impacted global markets.
A Positive Shift for Equity ETFs
The Vanguard S&P 500 ETF (VOO), the largest ETF by assets at $621.5 billion, experienced an impressive 2.7% increase, effectively surpassing its price from earlier in April, dubbed “Liberation Day” by investors. This uptick marks a notable recovery for the fund, which had been under pressure during the recent trade conflict. On the contrary, the SPDR Gold Trust (GLD) saw a 3.1% decline, though it remains up 27% for the year. Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) dropped 0.6%, reflecting investor confidence moving towards growth opportunities over traditional safety measures.
The newly forged agreement, reached during negotiations in Switzerland, entails a temporary reduction of U.S. tariffs on Chinese imports—from 145% to 30%—and a cut in duties on U.S. goods from China, down to 10% from 125%. These changes are set to take effect on Wednesday and are expected to have immediate ramifications on consumer pricing and market stability.
Market Overview
The positive movement in the S&P 500 represents its largest single-day gain since an impressive 9.5% leap on April 9, following a period of volatility where stocks briefly entered bear market territory. This latest rally reflects a broader investor sentiment that favors a rebound in equities as optimism regarding trade agreements rises. Despite a recent trend where capital flowed into "safe-haven" assets like gold due to rising market tensions, investors still funneled a net $8.5 billion into VOO over the past month, hoping for a sustained recovery.
The iShares China Large-Cap ETF (FXI) also enjoyed a boost, rising 3.3% in tandem with the positive developments in U.S.-China relations.
Sector Movements
Retail-focused ETFs responded favorably to the tariff rollback, with the SPDR S&P Retail ETF (XRT) climbing 4.6%. Investors anticipate that the reduced tariffs will stave off rising consumer costs for popular budget-conscious Chinese goods, bolstering the outlook for retailers reliant on these imports. Notable holdings in XRT include Dollar General Corp., Dollar Tree Inc., and National Vision Holdings Inc.
In the pharmaceutical sector, ETFs had a mixed performance following President Trump’s announcement regarding drug price regulation. The VanEck Pharmaceutical ETF (XPH) rose 1.7% after initially dipping, while the Invesco Dynamic Pharmaceuticals ETF (PJP) gained 2.2%.
India-focused ETFs similarly reflected broader geopolitical developments. The iShares MSCI India ETF (INDA) increased by 3.5%, buoyed by a ceasefire between India and Pakistan as both nations strive to improve diplomatic relations following a period of conflict.
Conclusion
The day’s market developments highlight a renewed sense of optimism among investors, showcasing a significant rebound for stock ETFs in response to the diminishing trade hostilities between the U.S. and China. As negotiations lead to tangible results, the financial markets appear poised for potential recovery, though the performance of bonds and traditional safe-haven assets like gold indicates a shifting landscape where growth-focused investments take precedence. As this narrative unfolds, investors and analysts alike will be closely monitoring any further developments in trade negotiations and their implications for global markets.
About the Author
Ron Day is a financial correspondent for Smart Money Mindset, covering market trends, investment strategies, and economic developments impacting the global economy. Follow Ron for more insights and updates.
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