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- US stocks got a burst of good news this week, helping the S&P 500 erase year-to-date losses.
- The S&P 500 was on track for 5-day winning streak on Friday.
- Investors got a boost from the US-China trade deal, benign inflation data, and other developments.
The stock market is headed for one of its best weeks in 2025.
Greeted by news of a reprieve in US-China trade tensions on Monday, the good news continued to roll in for investors even as Federal Reserve chief Jerome Powell reiterated his cautious outlook for rates and the economy.
The S&P 500 on Friday was on track for a fifth-straight winning day, with the index clawing back its losses since the start of the year and set for a gain of nearly 5% since last Friday's close.
Here are the week-to-date moves in the major indexes:
S&P 500: +4.6%
Dow Jones Industrial Average: +2.7%
Nasdaq Composite: +6.7%
Here are the four forces behind the stock market's winning week.
US-China trade
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Markets kicked off the week on a high note after the US and China reached a framework trade agreement. The deal involves the US dialing back its tariffs on Chinese goods to 30%, while China lowers duties on imports from the US to 10% for 90 days.
It's not a definitive trade agreement, with negotiations between the two countries set to continue over the coming weeks. But the news quelled anxiety around one of the market's biggest fears at the moment.
Top Wall Street commentators had mixed reactions to the agreement, with many noting that the US tariff rate is still markedly higher than it has been in decades. Still, many bank researchers have raised their outlooks for economic growth and US stocks after turning more bearish following the April 2 tariff unveiling.
Goldman Sachs and Barclays were among those that saw higher stock returns and a reduced risk of a recession in 2025.
"Our updated fair value estimate reflects reduced uncertainty, faster earnings growth, lower inflation, and renewed confidence in the fundamentals for the largest stocks in the index," Goldman wrote in a note on Monday.
Cooler consumer prices
Inflation was unexpectedly cool in April. Consumer prices rose 2.3% year-over-year, reflecting the slowest pace of inflation since 2021.
The data dispelled some concerns around stagflation—a troublesome combo of high inflation and low growth—hitting the US economy. However, some have also warned that the inflation fight is not yet over, and tariffs will start showing up in prices in the coming months.
A big drop in producer prices
Producer prices also fell unexpectedly in April, another sign inflation is cooling.
The Producer Price Index for final demand dropped 0.5% in April, down from a 0% change in March. Meanwhile, prices for final demand services dropped 0.7%, the largest drop recorded since 2009, the Labor Department said on Thursday.
"The shift in price declines has tinted the April data, and there is now little sign of a shock increase in response to tariffs," Alex Kuptsikevish, the chief market analyst at FXPro, wrote in a note. "Of course, goods under the new tariffs won't arrive en masse in the States until the second half of May, but America didn't experience massive price increases in advance, which is relatively good news."
Yields edge down on rate outlook
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Cooler inflation bolstered the outlook for Fed rate cuts during the week.
Markets are largely expecting the Fed to hold rates steady at its June policy meeting, but rate cut probabilities for the year have risen in recent weeks. According to the CME FedWatch tool, investors see a 77% chance the central bank will cut rates at least two more times by year-end.
Bond yields drifted lower this week as markets repriced the outlook for rates. The yield on the 10-year US Treasury, a lending benchmark that Trump is monitoring closely, dropped to as low as 4.39% on Friday, down from a peak of 4.54% earlier in the week.