This week U.S. President Donald Trump has executed something of an about-face on tariffs on Chinese imports, and predictably the market extended its celebration.
This article was first published in The Australian on 16 May 2025.
The U.S.-China tariff agreement announced on 12 May, marked a significant de-escalation in trade tensions. Both nations agreed to a 90-day pause on tariff increases, reducing U.S. tariffs on Chinese imports from 145 per cent to 30 per cent and Chinese tariffs on U.S. goods from 125 per cent to 10 per cent.
In turn, Wall Street bounced: If you remember, a fortnight ago, I wrote the market rally “is not a sign of irrational exuberance but a reflection of investors pricing in a potential policy shift. Markets often rebound after sentiment shocks when uncertainty peaks and the worst-case scenario fades.”
Well, at the time of writing, the S&P 500 is less than 4 per cent from its all-time highs. But with gains come higher multiples, and now the S&P 500’s price-earnings ratio sits at 20.4 times one year forward earnings, which is higher than at any other time in the last 23 years, except for the Covid-19 period and earlier this year, right before the market corrected.
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