Is this 2-day stock market surge for real? Here's a look at what's driving the rally

Published Wed, Apr 23 20251:40 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466

Stocks were coming to life once again. This time, it was all about updates on two of the darkest clouds hanging over this bruised market — the 145% tariff rate on China imports and the future of Federal Reserve Chairman Jerome Powell. Following similarly strong gains in the prior session, the Nasdaq and S & P 500 on Wednesday gained 3% and 2%, respectively, after President Donald Trump softened his stance on China tariffs and said he won't try to get rid of Powell. The market, however, was off its highs, and one of the reasons could be what Treasury Secretary Scott Bessent said during a speech Wednesday — that both the U.S. and China will need to agree to lower tariff rates before Washington budges on its import duty level. Given China's tough stance, there are no guarantees Beijing will make an offer to cut tariffs, too. Both sides are waiting to speak to each other. While paring earlier gains, Wednesday's rally signaled a market that remains a coiled spring just waiting for any reassurance out of Washington. And when it came, it sent the shorts scurrying . A so-called short squeeze — which happens when investors betting against the market have to cover their positions — may be contributing to the rally. The double-shot of encouraging news came after Tuesday's close when Trump said he has "no intention" of firing Powell . "None whatsoever," Trump said in remarks from the Oval Office — in a sharp reversal in rhetoric after the president attacked Powell in recent days over what Trump believes is the Fed's mistaken reluctance to lower interest rates. Investors were pleased to hear the softer tone because concerns about Fed independence contributed to a stock sell-off Monday. Trump late Tuesday also adopted a softer tone on China, adding fuel to the relief rally. He said the 145% tariff rate that he has implemented on Chinese imports to the U.S. will not stay that high. "It'll come down substantially. But it won't be zero," the president added. While there's not a very concrete timeline on when that will happen — or what a trade deal between the two countries would even look like — the market is happy to hear that, for now at least, Trump is adopting a new posture toward China. As the president ramped up tariffs on Chinese goods, Beijing responded with higher duties on U.S. imports and other retaliatory measures, such as instructing airlines in the country to stop taking planes from Boeing , an iconic American manufacturer. The tensions between the world's two largest economies have all sorts of ripple effects on companies that investors have been trying to wrap their heads around for weeks — be it direct tariff exposure, secondary effects tied to slowing economic growth, or some combination of the two. It's thrown earnings estimates into flux , making it even harder than usual to value stocks On top of the stock market sell-off, recent volatility in the Treasury market and the U.S. dollar weakening indicated that the trade war was having far-reaching effects on financial markets. On Wednesday's Morning Meeting, Jim said there appears to be "two camps" in the Trump administration, and the camp that wants aggressive trade policy had been in the driver's seat for much of April. "The camp that says, 'Look, the market matters, rates are lower, stability matters,' is in ascendance, and that is why we're having a rally," Jim said. The sigh of relief is playing out within our portfolio. Companies with exposure to China were among the biggest gainers. Amazon — with an online marketplace that sells plenty of products made in China — saw its shares rise more than 5%, some of which Jim said also could be short-sellers covering their bets against the stock. Shares of Meta Platforms , which a day ago was the subject of a research note that warned it could take a $7 billion advertising revenue hit from the tariff war, jumped more than 4%. That puts both Amazon and Meta's stocks on pace for their best days since April 9, the day that Trump paused his "reciprocal" tariffs on most countries other than China, igniting one of the biggest one-day market rallies of all time. Nvidia , which also has been ensnared in the trade war tensions, also was tracking for its biggest advance since April 9. Meanwhile, Danaher, which on Tuesday warned on its earnings call that it could face a $350 million tariff headwind this year , climbed more than 3%. The bottom line is that Wall Street is taking its cues from the White House. After a few bruising weeks, investors are currently hearing a lot to like. How long that tune plays, though, is anybody's guess. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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US President Donald Trump speaks with reporters outside the White House in Washington, DC, on April 23, 2025.

Saul Loeb | Afp | Getty Images

Stocks were coming to life once again.