Stocks Up as Tariff Pause Encourages Market

U.S. stocks ended higher on Tuesday, helped by a stronger energy sector. Market optimism was fueled by President Donald Trump's unexpected pause in trade measures against Canada and Mexico.

Tariffs Take Effect, But Time Is on the Side of the Negotiations

Despite the introduction of new 10% tariffs on Chinese imports, to which Beijing responded with mirror measures, investors are in no hurry to panic. The question of further trade negotiations remains open, and Trump said he does not intend to rush things.

Energy sector leads the market higher

The largest growth was recorded in the energy sector (.SPNY), which added 2.18%. At the same time, utilities (.SPLRCU) and consumer companies (.SPLRCS) were among the outsiders, declining.

30-day reprieve instead of tough measures

Initially, Trump planned to impose 25% tariffs on products from Mexico and Canada, but unexpectedly changed his position, agreeing to a month-long reprieve. In return, Washington expects concessions from its northern neighbors on border control and the fight against crime. "Trump's rapid softening of his stance suggests that his real goal is more a political win with voters than a major change in trade policy," said Sam Stovall, chief investment strategist at CFRA Research.

Strong corporate earnings fuel investor optimism

The U.S. stock market continues to show strong growth, fueled by strong quarterly earnings reports. According to the S&P 500, of the 211 companies that have already published financial results for the fourth quarter, almost 77% have beaten analysts' estimates. This has become a powerful catalyst for further growth in stock indices.

Palantir surprises Wall Street

One of the big winners of the day was Palantir (PLTR.O). Its shares soared by 24% after publishing revenue guidance for the first quarter and full year, which turned out to be significantly higher than the market expected. The success of the analytics company underscores the growing demand for advanced data processing technologies.

Alphabet: Rise Before Fall

Alphabet (GOOGL.O) shares showed a confident growth of 2.6% ahead of the publication of the quarterly report. However, after the release of financial data, the shares sharply fell - the company did not meet analysts' expectations due to the slowdown in the cloud business. As a result, Alphabet shares fell by 7% during post-market trading.

Stock indices in the green

Despite the volatility of individual stocks, key indices ended the day in the green zone:

• The Dow Jones Industrial Average (.DJI) added 134.13 points (+0.30%) and reached 44,556.04;

• The S&P 500 (.SPX) rose 43.31 points (+0.72%) and closed at 6,037.88;

• The Nasdaq Composite (.IXIC) led the gainers, up 262.06 points (+1.35%) to 19,654.02.

China hits U.S. companies

Not all companies managed to end the day with gains. Illumina (ILMN.O), a major player in the biotech sector, lost 5.3%, while PVH Corp (PVH.N), the holding company that owns brands such as Calvin Klein, fell almost 1%. The reason was the inclusion of companies on China's "blacklist" - a move by Beijing that is increasing tensions in international trade and putting pressure on investors.

Fed warns of inflation risks, markets react in different directions

Three Federal Reserve officials expressed concerns about the possibility of higher inflation due to trade tariffs. One of them said that uncertainty over price pressures calls for a more cautious interest rate cut. This signals that the Fed may be acting less aggressively than investors expected.

Labor Market Shows Signs of Cooling

The number of open positions fell to 7.6 million in December, according to the U.S. Department of Labor, while experts had forecast 8 million. This may indicate that demand for labor is starting to weaken, which in turn affects the outlook for the economy and monetary policy.

PepsiCo Disappoints with Forecasts

PepsiCo (PEP.O) shares fell 4.5% despite rising profits. Investors were disappointed with the company's full-year outlook, which was below analysts' expectations. In addition, quarterly revenue fell short of Wall Street forecasts, adding to pressure on the shares of the beverage and snack maker.

Estee Lauder Slips

Cosmetics giant Estee Lauder (EL.N) plunged 16.1% after reporting a weak quarterly report. The company continues to struggle as demand slumps, forcing it to announce job cuts in one of the biggest declines for the brand in years.

Merck Faces China Problems

Pharmaceutical company Merck (MRK.N) fell 9.1% after saying it would halt shipments of its Gardasil vaccine to China until at least mid-year. The reason is weak demand for the HPV vaccine, which could significantly impact the company's 2025 revenue.

PayPal Falls Short of Expectations

PayPal (PYPL.O) shares fell sharply 13.2% after the company reported disappointing fourth-quarter operating margins, fueling investor concerns that competition in the digital payments space continues to weigh on its profitability.

Trade conflict not escalating yet

Although the new US tariffs were softer than expected, this did not save Chinese markets from an initial negative reaction. However, the Hong Kong stock market took the situation more calmly, with Chinese stocks even showing growth. Investors see this as a sign that a large-scale trade crisis has been avoided for now.

DeepSeek inspires optimism

Amid trade uncertainty, investors have found a reason for optimism in China's artificial intelligence sector. DeepSeek, which has introduced an advanced low-cost AI model, has triggered a surge in interest in tech stocks. This factor, according to experts, has temporarily eased the concerns of investors who are counting on Beijing's support in the future.

China's stock market reacts cautiously

Despite trade risks, the sell-off in stocks was limited:

• The blue-chip CSI300 index (.CSI) lost only 0.2%, demonstrating resilience to external pressure;

• The Shanghai Composite Index (.SSEC) also fell 0.2%, indicating a wait-and-see attitude among investors.

The main focus of market participants is now on possible measures to support the economy from the Chinese authorities.

Yuan exchange rate: Beijing remains cautious

On Wednesday, China's central bank set the average exchange rate of the yuan at 7.1693 to the dollar, the highest level since November 2024. Investors interpreted this move as a signal of Beijing's reluctance to weaken the currency in response to US tariffs.

Previously, a weak yuan helped China mitigate the impact of trade tariffs, especially during Donald Trump's first term in office. Now, market participants are closely monitoring the dynamics of the yuan to understand what position Beijing will take in negotiations with the United States.

Chinese stock markets recoup growth, but risks remain

Mainland Chinese stock markets (SSEC, CSI300) followed the example of the Hong Kong stock market, which opened earlier and showed confident growth. Despite new 10% tariffs from the U.S., Chinese stocks surged higher on Tuesday, showing resilience in the face of trade challenges.

Trade Blows: Tariffs, Sanctions, and China's Countermeasures

A weeklong holiday in China saw several notable events:

• The Trump administration imposed new tariffs on Chinese imports, causing jitters in markets;

• Beijing announced mirror-image retaliation targeting U.S. imports;

• Chinese authorities warned companies, including Google, of possible sanctions, adding to tensions.

Despite all this, Chinese stocks in Hong Kong (.HSCE) have risen more than 4% this week, hitting a three-month high. The tech sector (.HSTECH) has strengthened even more, gaining nearly 7%, underscoring continued optimism among investors. However, the Hang Seng (.HSI) fell 1.2% on Wednesday, likely due to profit-taking after a sharp rally.

Yuan Weakens on Trade Risks

The Chinese currency has also come under pressure. The offshore yuan has fallen 0.6% since Jan. 27, when mainland markets closed for a holiday. It hit an all-time low this week, signaling growing investor concerns that Beijing could manipulate the currency further in response to U.S. tariffs.

Technology Drives Market Higher

Mainland stocks have seen a surge in interest in technology, particularly in the artificial intelligence sector. Following the rapid rise of AI companies in Hong Kong, similar dynamics have emerged on the mainland:

• The China AI Index has gained 3%;

• Robot makers (.CSIH30590) have risen nearly 4%;

• The STAR 50 technology index (.STAR50) has risen 3%, signaling strong demand for innovative companies.

The main driver of this growth was investor excitement over Chinese company DeepSeek, which presented an advanced AI model that strengthened faith in the potential of the Chinese tech sector.

Macroeconomic worries weigh on the market

Despite recent gains, the benchmark index of Chinese blue chips has fallen 3% year-to-date, reflecting investor concerns about macroeconomic instability, a potential slowdown in growth, and ongoing pressure from trade wars and geopolitics.

China market balances optimism and risks

A sharp rise in tech stocks and confidence in the AI sector have supported China's stock market for now, but trade barriers, currency instability, and macroeconomic threats could continue to weigh. Investors are closely watching the next steps of Beijing and Washington to see what tools they will use to stabilize the situation.