US Stocks Rally on Trade Talks, Face Inflation Risks

U.S. stock markets experienced a volatile week but ended on a positive note, buoyed by a U.S.-China tariff truce and optimism from ongoing trade negotiations with other countries including the U.K. The S&P 500 rebounded to its year-to-date high after a temporary pullback prompted by Federal Reserve Chairman Jerome Powell's comments about rising long-term interest rates and the likelihood of more frequent supply shocks. Despite strong corporate earnings, such as Walmart's, and a tentative easing of trade tensions, risks remain from elevated tariff levels and inflationary pressures, with the Federal Reserve's rate cut timeline pushed back to December. Market analysts caution about high valuations, concentration risks, and the uncertain path ahead due to geopolitical tensions, including China's restrictions on rare earth metal exports and complex trade relations with India. Investors have responded by favoring portfolio diversification, including reducing U.S. exposure and increasing allocations to resilient growth and value stocks. Meanwhile, Japanese assets attracted record inflows as investors sought safer havens amid the mixed U.S. economic signals.