Trump, Xi Summit: Will Stock Markets Get Enough to Feed the Rally?

Stock markets took a beating just as Donald Trump and Xi Jinping prepared to meet face-to-face in Beijing.

• A scorching six-week rally on Wall Street paused as high-flying chipmaking stocks fell
• US inflation was higher than expected in April as the US-Iran war buoyed energy prices
• Stock markets are on fragile footing as presidents Trump and Xi meet for a summit

The blistering stock market rally powering Wall Street to record highs this month hit pause as the chipmaking companies driving it backpedaled while US inflation data produced a stronger price growth pickup than expected. The spotlight now turns to Beijing, where US and China presidents Donald Trump and Xi Jinping are due to meet.

The bellwether S&P 500 inched down 0.14% by the close of trade, trimming an intraday drop of as much as 0.97%. The tech-tilted Nasdaq 100 faced greater pressure, losing 0.86%. That too was a narrower fall than it might have been. At one point over the course of the day, the index was trading down 2.32%.

Feverish hopes for dramatic upscaling of data center infrastructure to power increasingly rabid demand for artificial intelligence (AI) tools inspired a stark, lopsided rally from market lows set the final days of March. Traders turned away from inflation fears set off surging oil prices amid the US-Iran war to focus on tech firms’ ballooning capex plans.

Going up or down, semiconductors are driving US stocks

Four of the large AI “hyper-scalers” – Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and META – announced nearly $750 billion in spending to build more compute capacity in 2026 as they reported quarterly earnings results last month. That’s close to double the tally from last year.

The headline Nasdaq 100 is up over 15% from the start of the year, but its equal-weighed equivalent (ETF: QQEW) has added a meager 1.08%. The “magnificent seven” mega-cap tech companies (ETF: MAGS) are lagging too, adding just 4.8%. By contrast, semiconductor names (ETF: SMH) are up a whopping 46.3%.

As with the rally, so too with the pullback. SMH fell 2.61%, far more than Nasdaq overall. News reports cited a steep market drop in South Korea – a key node for the global AI supply chain – as the would-be catalyst. The country’s KOSPI stock index shed 2.3% as a proposal to extract “excess tax revenue” generated by the AI boom gained traction.

Meanwhile, US consumer price index (CPI) data showed that inflation accelerated to 3.8% year-on-year in April, the highest since May 2023. Economists were penciling in a smaller 3.7% reading ahead of the release. Energy costs jumped 17.9%, the steepest annual increase since September 2022, driven mainly by gasoline prices.

US CPI data confirms rate cuts aren’t coming to soothe market angst

Traders surely expected something of the sort. It takes about one month for major oil price moves to begin filtering into headline CPI, and the WTI crude benchmark surged 39.4% in March amid the outbreak of the US-Iran war. More of the same looks likely ahead. Tellingly, crude prices are still locked in their wartime range despite a supposed ceasefire.

That has banished the possibility of interest rate cuts from the world’s top central banks. The Federal Reserve is seen stuck at standstill for the remainder of the year having been scoped for 50 basis points (bps) in cuts when 2026 began. Rate hikes now appear in the outlook for the European Central Bank (ECB) and the Bank of England (BOE).

At the same time, the war has made the economic outlook even trickier to divine than last year, when the Trump administration sent markets scrambling with the rocky rollout of a new tariff regime. The Economic Policy Uncertainty Index, a gauge based on analyzing key terms in news articles, has jumped to the highest in at least 41 years.

This means that market participants must operate in an environment where the risk of some unexpected outturn is uniquely high even as the price of borrowing fresh capital to offset any sudden losses rises. Treasury bond yields have rallied back to wartime highs after a brief pullback through mid-April as the fighting in Iran shifted to a lower gear.

Donald Trump, Xi Jinping meeting may underwhelm traders

That makes for a tenuous backdrop as Donald Trump and Xi Jinping meet face-to-face for the first of four times slated for this year. A litany of big-ticket questions awaits: the fate of Taiwan, the AI arms race, tariffs and trade policy, the new war in Iran and the ongoing one between Russian and Ukraine, now in its fourth year. 

Mr. Trump nor Mr. Xi are probably keen on a courteous if perhaps icy visit. That is because both the US and China are wedded to the AI boom as an engine of economic growth and thereby have a vested interest in keeping the global supply links underpinning it humming along as seamlessly as possible.

China may finally be emerging from nearly three years of economy-wide deflation as demand for AI-related tech and for electric vehicles – the latter buoyed by surging oil prices – drives a rise in exports. Meanwhile, business investment – mainly in data centers – contributed more to US economic growth than consumption did in the first quarter.

Both countries’ leaders need this to continue as they navigate a fraught geopolitical landscape while their citizens wince at rising prices for food, energy, and much else besides. That might steer the conversation away from thorny places where tempers might flare. A handful of business deals and pledges to compete responsibly may be all that is on offer.

That may amount to an unwelcome status quo for the markets, leaving them with the same toxic mix of rising uncertainty and dearer credit as before the summit. An opportunity to take at least some risk off the table – like an agreement to lock tariff rates for some extended period, say – is likely to be missed. A wave of disappointed selling might follow.

Ilya Spivak, tastylive Head of Global Macro, has over 15 years of experience in trading strategy. He specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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