US stocks end higher on trade war hopes. Dow adds 1,000 points. Tesla earnings disappoint
U.S. stocks closed higher, recovering Monday's losses on hopes for trade deals.
Vice President JD Vance said the U.S. has made “significant progress” toward a bilateral trade deal following talks with Indian Prime Minister Narendra Modi.
Additionally, Treasury Secretary Scott Bessent reportedly told a group of investors Tuesday the trade war with China was unsustainable. According to the report, Bessent also said that a deal between the two nations was possible and he expected “there will be a de-escalation” in Trump’s trade war with China in the “very near future.”
The blue-chip Dow rose 2.66%, or 1,016.57 points, to 39,186.98 to snap a four-day losing streak; the broad S&P 500 added 2.51%, or 129.56 points, to 5,287.76 and the tech-heavy Nasdaq gained 2.71%, or 429.52 points, to 16,300.42. The benchmark 10-year yield dipped to 4.403%.
Investors are calmer on Tuesday, but the quiet remains fragile as an economic slowdown still features in most analysts' predictions and Trump is likely not finished berating Federal Reserve Chairman Jerome Powell.
The International Monetary Fund slashed its forecast for U.S. economic growth this year to1.8%, which dodges a recession but is a full percentage point lower relative to last year's growth rate, and about 0.9 percentage points below its forecast in January. Tariffs account for almost half of the cut, though policy uncertainty also weighed on growth, the IMF said.
Next year, the IMF sees the U.S. economy growing 1.7%, down 0.4 percentage points from its prior forecast.
Trump has added to economic jitters by ratcheting up criticism of Powell in the last week. The latest blow came Monday when he called Powell a "loser" and demanded again the Fed cut rates "NOW." Without rate cuts, he said the economy would slow.
The remarks come after hints that the administration was looking at ways to fire Powell. Powell has said he will serve out his term, which ends in May 2026.
All the Fed talk added to already frayed nerves from tariffs. "Any reduction in the independence of the Fed would add upside risks to an inflation outlook that is already subject to upward pressures from tariffs and somewhat elevated inflation expectations," said Michael Feroli, chief U.S. economist at JPMorgan.
Executives from Walmart, Home Depot and Target, nervous about tariffs, were among those who met with the White House on Monday afternoon to discuss tariff exemptions. On Tuesday, auto groups lobbied against 25% tariffs on auto parts that are set to take effect May 3.
Meanwhile, China warned it would retaliate against countries that aligned themselves with the U.S. by isolating China, and South Korea customs data showed exports fell sharply in the first 20 days of April due to tariffs.
"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 for LPL Financial.
Will the Supreme Court determine Powell's fate?
The administration fired two members of independent agencies, the National Labor Relations Board (NLRB) and the Merit Systems Protection Board (MSPB). A lower court has ruled those firings unlawful, the administration appealed, and the Supreme Court has decided to hear the appeal.
Feroli sees three possible outcomes: the Supreme Court could rule in favor of the administration; rule in favor of the administration in the NLRB and MSPB cases, but consider the Federal Reserve as a separate case, possibly to the benefit of Fed governors; or rule against the administration, protecting Powell's job.
However, Feroli notes that even the last option doesn't guarantee Powell's job is safe. "There is a separate question as to whether the administration can demote a governor from their leadership position as either Chair or Vice Chair," he said. "Unlike governors, the Federal Reserve Act does not explicitly give 'for cause' protection to leadership positions, though no administration has ever sought to demote someone from such a role."
Will the Fed cut rates this year?
Powell has suggested he is in no hurry to lower rates, despite loud calls from the president to do so immediately. He said last week the Fed is "well positioned to wait for greater clarity before considering any adjustments to our policy stance."
However, investors have priced in a full percentage drop in the Fed's short-term benchmark fed funds rate this year, according to the CME FedWatch tool that measures market expectations for Fed moves.
Gold climbs to another record high
Gold continues to climb, breaking above $3,500 per ounce for the first time before edging lower by the end of the day.
"The threat to the Fed’s independence has added fuel to an already bullish gold market," said Daniela Sabin Hathorn, senior market analyst at online trading app Capital.com. "Investors increasingly view the precious metal as a safe haven in times of political and economic instability. This latest chapter in Washington has only intensified that demand."
Corporate news
After the market closed, Tesla reported first-quarter results that missed analysts' expectations. Shares of the EV giant dipped in after-hours trade.
Earlier in the day:
- BOK Finanial reported earnings per share in the latest quarter that missed analysts' forecasts. Shares fell 1.7%.
- Calix topped analysts' earnings forecasts in the first three months of the year and expects the current quarter to be strong. Shares advanced more than 13%.
- U.S.-based First Solar shares rose more than 10.5% after U.S. trade officials finalized steep tariff levels on most solar cells from South Asia.
- 3M reported better-than-expected earnings, and stood by its full-year outlook even as it acknowledged trade war risks. Shares jumped more than 10%.
- Defense company RTX shares fell 9.81% after the company said tariffs pose a significant risk to its operating profit.
- Lockheed reported strong profits in the first three months of he year and reaffirmed its forecasts for the year. It said it saw resilient demand for its missile systems and fighter jets. Shares edged up nearly 1%.
- GE Aerospace is cutting costs to deal with rising tariffs. It's streamlining operations and seeking refunds for duties it pays on imported parts that are later exported. The company topped earnings forecasts. GE shares rose 6%.
- Verizon said it lost more postpaid net phone subscribers during the last quarter than expected. Shares were fractionally up.
- Northrop Grumman missed analysts’ earnings expectations for the first three months of the year and cut its earnings forecast for the year. Shares shed 12.66%.
- Invesco shares rallied more than 8% after the asset manager reported higher-than-expected quarterly profit.
Cryptocurrency
Bitcoin sailed past $90,000 for the first time since March. It was last up 4.5% at $91,475.45.
Although Bitcoin has moved closely with volatile stocks, it has recently begun to diverge. Some investors may be looking for an alternative place to park their money now as economic uncertainty lingers, some analysts said.
Medora Lee is a money, markets, and personal finance reporter at Paste BN. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.