Markets react positively to tariff delay, setting the tone for a busy trading week
If you’re the type to peek at your portfolio over a long weekend, this past Memorial Day probably brought some good news. While U.S. markets were closed on Monday, May 26, 2025, futures were buzzing – climbing over 1% – after President Trump surprised markets by delaying a widely criticized tariff hike on European Union goods.
Originally, a 50% tariff was set to hit on June 1. It was part of a broader escalation in the U.S.-EU trade tensions, with Trump citing “insufficient progress” in negotiations. But just days before the deadline, and after a phone call with European Commission President Ursula von der Leyen, the White House agreed to extend the deadline to July 9. That move gave traders and diplomats alike a collective sigh of relief.
And markets? They cheered.
What Triggered the Rally?
This kind of “threat and retreat” trade strategy isn’t new for Trump. We’ve seen similar moments throughout his administration – sharp threats followed by strategic pullbacks. But what made this particular announcement significant was the sheer scope of the tariffs and the timing.
We’re talking about tariffs that would’ve impacted hundreds of billions of dollars in goods, from luxury autos to high-end tech components, to wine and agricultural exports. And with U.S. consumers already navigating sticky inflation and global supply chains still somewhat fragile, adding another layer of price pressure wasn’t exactly welcome news.
Instead, the delay allowed investors to breathe a little easier – at least for now.
European markets were open for business on Monday and wasted no time pricing in the optimism. The Stoxx Europe 600 index jumped 1%, led by auto stocks and luxury brands like LVMH and BMW. Banking and industrial shares also rallied, buoyed by hopes that the U.S. and EU could still find a middle ground.
The U.S. Market Reaction – Even with the Lights Off
Even though U.S. markets were officially closed for Memorial Day, index futures traded through the day, offering a preview of what could come when trading resumes. The S&P 500 futures were up over 1%, with Dow and Nasdaq futures following closely behind.
This matters because futures act like a kind of market weather vane – reflecting sentiment before the official opening bell. When they’re up this significantly, it usually means investors expect the rally to carry over into the week.
And considering that the S&P 500 is already riding a six-day winning streak, the tariff delay could provide the momentum needed to extend that run. SPX–
Why the EU Tariff Threat Hit So Hard
This wasn’t just a random skirmish. The European Union is the United States’ largest trading partner. Tariffs on EU goods don’t just hit foreign exporters – they impact American businesses, distributors, retailers, and yes, consumers. From German cars to French cheese, higher import taxes tend to ripple through the supply chain.
For the markets, it wasn’t just the economics – it was the uncertainty. Businesses hate guessing games. And when trade policy becomes unpredictable, it can freeze hiring plans, delay investments, and spook shareholders.
That’s why Monday’s delay was so meaningful. It didn’t solve the trade dispute, but it paused the escalation. And in markets, sometimes no news (or in this case, delayed news) is good news.
What’s Next? Eyes on July 9
Of course, delaying the tariffs doesn’t mean they’re off the table. The July 9 deadline is now the next key date to watch.
Trump has indicated that “substantial progress” must be made in trade talks or the 50% tariffs will go forward. European officials have expressed cautious optimism but haven’t signaled major concessions just yet.
For investors, that means volatility could resurface as the deadline approaches. Remember what happened in past trade battles with China? Markets can swing wildly on headlines, leaks, and offhand tweets. If this becomes a game of chicken, brace yourself.
Sectors to Watch
Certain sectors are more sensitive to trade news than others. Here’s who’s on the front lines:
- Automobiles: European carmakers like Volkswagen, BMW, and Mercedes-Benz have deep supply chains tied to U.S. operations. American dealers and parts suppliers also get hit if costs spike.
- Luxury Goods: Tariffs on luxury items can crush profit margins. LVMH, Kering, and Richemont all saw their shares lift Monday on the news of the delay.
- Consumer Goods: American companies that import European staples – wines, cheeses, olive oils – are watching this closely. If tariffs go through, grocery prices could tick up further.
- Industrial and Manufacturing: Cross-border supply chains are everywhere. Even modest tariffs can create friction in logistics, contract pricing, and vendor relationships.
Investors in these sectors should stay nimble and watch for trade negotiation headlines as July nears.
Bottom Line: Relief Today, Risk Tomorrow
If you’re looking for a quick takeaway: Monday’s news was good. The tariff delay takes a short-term risk off the table, and that’s bullish for stocks in the near term.
But let’s not confuse delay with resolution. The underlying trade tensions are still very real, and July 9 will come faster than we think. Between now and then, markets are likely to hang on every update, rumor, and soundbite from Brussels and Washington.
For investors, this is a moment to stay alert, not complacent. Enjoy the rally – but keep your eyes on the road ahead.
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