Amid Trade Tensions, US Stocks Soar on News of a Trump-XI Call

U.S. stocks made a sharp turnaround on Thursday after reports surfaced about a phone call between President Donald Trump and Chinese President Xi Jinping. This news helped erase earlier losses triggered by a surprisingly weak labor market report. The S&P 500 and Nasdaq 100 each edged up by 0.1% shortly after markets opened in New York, while the Dow Jones Industrial Average hovered near the flat line.

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The gains followed a report from Chinese state media that the two world leaders had spoken amid escalating trade tensions. The call offered a sense of relief to investors who have been worried about worsening relations between the U.S. and China—the world’s two largest economies. Markets interpreted the communication as a potential sign of diplomatic progress or a pause in trade-related hostilities.

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Earlier in the day, markets were weighed down by disappointing labor market data. Jobless claims unexpectedly rose last week, adding to concerns about the U.S. economy’s momentum. The number of Americans filing for unemployment benefits increased by 8,000 to 247,000 for the week ending May 31. That figure marked the highest level since October and came in above the median forecast of 235,000, based on a Bloomberg survey of economists.

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Matt Maley, chief market strategist at Miller Tabak + Co., commented on the data, saying, “Following yesterday’s weaker-than-expected ADP employment report, this rise in jobless claims is another sign that the labor market may be softening. While this development is somewhat bearish for stocks, tomorrow’s official jobs report will be the real deciding factor.”

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Stock Highlights: Planet Labs Soars, Chewy Falls, Visa Rises

In terms of individual stocks, Planet Labs PBC surged by over 42% after reporting first-quarter revenue that exceeded expectations. Meanwhile, Chewy Inc. shares declined after Jefferies downgraded the pet product retailer from a “buy” to a “hold” rating. On the other hand, Visa Inc. saw its shares rise following an upgrade from Mizuho Securities, which now rates the stock as “outperform.” Mizuho cited continued potential in the transition from cash to digital payments in the U.S.

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Tech Leads May Rally, Small-Caps Eye Seasonal Strength

The S&P 500 extended its solid performance in May, with the index climbing 20% from its April 8 low. Much of that gain was driven by strong performance in technology stocks. According to Bloomberg Intelligence’s sector rotation model, tech may have moved past its worst phase, although domestic cyclicals—companies that tend to perform well during strong economic periods—may continue to lag due to lingering policy uncertainty and consumer strain.

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Smaller U.S. stocks are also entering what has historically been a seasonally strong period. This has raised hopes that the small-cap segment, which has had a rough start to 2025, could finally begin to recover.

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Despite the broad market rebound, retail investors appeared to be taking a more cautious stance. In May, retail traders net-purchased about $23 billion in U.S. equities. While that’s still a significant amount, it’s roughly $17 billion less than what they bought in March and April.

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However, according to JPMorgan Chase strategist Emma Wu, the May figure aligns with the average monthly trend seen so far in 2025.

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Economic Warnings Flash Despite Market Gains

The broader economic backdrop remains concerning. Several indicators have raised red flags about the health of both the U.S. and global economies. The Institute for Supply Management’s (ISM) services index for the previous month showed a contraction for the first time in a year. U.S. business sentiment has also taken a sharp turn lower, reversing the optimism that followed Trump’s re-election.

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Adding to the caution, the International Energy Agency (IEA) forecasted a 6% decline in global oil investment for 2025. The drop is attributed to economic uncertainties and reduced expectations for future demand.

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Policy and Earnings in Focus

In a notable policy move, President Trump signed a proclamation restricting entry into the U.S. for individuals from 12 countries. The ban, however, does not apply to those who already possess visas, lawful permanent residents, or groups traveling for major events like the World Cup or the Olympics.

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Looking ahead, market participants are closely watching Friday’s nonfarm payrolls and corporate earnings reports, which could offer further insights into the health of the labor market, the consumer sector, and tech industry trends.

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Among the companies scheduled to report earnings after the closing bell are chipmaker Broadcom, which has outperformed the so-called “Magnificent 7” stocks during the recent rally, as well as athletic apparel brand Lululemon and digital agreement platform DocuSign. Their results will help shape investor sentiment heading into the next week.

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