U.S. markets saw a strong rebound on May 12, 2025, after a temporary U.S.-China trade agreement that lowered tariffs for 90 days. The S&P 500 rose 3.3% to 5,844.19, the Dow Jones gained 2.8%, and the Nasdaq Composite climbed 4.4%. This surge came after a challenging period earlier in the year when the S&P 500 had dropped nearly 20% from its February highs. The recent gains pushed the index back above its 200-day moving average, a key technical level that often signals market strength.
Despite the positive market response, analysts remain cautious. While the tariff reductions are meaningful, they are temporary, and many tariffs continue to be higher than pre-2025 levels, particularly in critical sectors like semiconductors and pharmaceuticals. Furthermore, concerns about persistent inflation, Treasury yields nearing 5%, and potential slowdowns in consumer spending point to the possibility that the recent gains might not be sustainable. With the initial excitement from the trade truce fading, investors are left to wonder if this marks the start of a sustained recovery or just a brief pause before another downturn.
After the tariff truce, Goldman Sachs became the first major brokerage to reduce its forecast for a U.S. recession. Since April 2, when U.S. President Donald Trump declared reciprocal tariffs on nearly all trading partners, all three major indexes have recovered their losses.
The 90-day pause announced on April 9 for countries other than China, along with strong earnings reports and a limited U.S.-UK trade agreement last week, have contributed to the S&P 500 and Nasdaq, particularly the tech-heavy index, regaining lost ground.
As of 7:10 AM Eastern Time on May 13, 2025, U.S. stock futures are showing a slight decline in premarket trading. The Dow Jones Futures are down 192 points, or 0.45%, and the S&P 500 Futures have fallen 16.25 points, or 0.28%.
What’s Ahead: Navigating the Potential Pitfalls of Inflation and Recession
As U.S. markets look ahead, the specter of persistent inflation continues to weigh on the economy. Inflationary pressures have remained elevated, with the U.S. Consumer Price Index (CPI) rising 2.3% in April 2025, slightly down from 2.4% in March. While this marks a modest decline, it remains above the Federal Reserve’s target of 2%, signaling that inflation is not easing as quickly as hoped.
This persistent inflation, coupled with the Fed’s ongoing interest rate hikes to control it, raises concerns about the broader economic impact. While analysts suggest that a severe recession may not be imminent, the continued pressure on prices and the Fed’s actions to manage inflation could dampen the economic recovery. In addition, Treasury yields have recently surged, with the 10-year Treasury reaching 4.45%, indicating a tightening of financial conditions that could further weigh on economic growth.
Despite these challenges, the immediate risk of a recession is less likely in the short term. Goldman Sachs, after revising its recession probability down, suggests that while growth may slow, the risk of a full-scale recession is currently low. The continued strength in the job market, with unemployment remaining near historic lows of 3.5%, suggests resilience in the economy.
Additionally, the robust corporate earnings reported in the first quarter, with S&P 500 companies posting a 10.5% year-over-year growth in earnings per share (EPS), provide some optimism. However, the sustainability of this growth is contingent on a stable labor market and any further developments in global trade, particularly with China.
Looking ahead, the market is likely to remain volatile, driven by the interplay of inflation concerns, interest rate adjustments, and global trade dynamics. While the recent rally sparked by the trade truce has lifted sentiment, investors will need to closely monitor key economic indicators, particularly inflation data and Federal Reserve actions.
The broader market may face challenges if inflation remains elevated and economic growth slows further, with sectors such as technology and consumer discretionary vulnerable to changes in interest rates and consumer confidence. Ultimately, the market’s trajectory will hinge on whether the recent gains are sustainable or if further economic pressures will lead to another market correction.
