Wall Street Retreats After China Dismisses Trade Talk Reports

Stocks pulled back Thursday morning after Chinese officials poured cold water on speculation about potential trade negotiations, stating categorically that no talks were currently taking place between Beijing and Washington.

Futures tied to the blue-chip index lost 116 points, or 0.3%, while S&P 500 futures remained flat and Nasdaq-100 futures edged up 0.2%. The major indices had posted strong gains on Wednesday, rising more than 1% each, though they finished well below their session highs. At one point during Wednesday's trading, the Dow had surged more than 1,100 points.

China Refutes Trade Talk Claims

The market pullback came after China's Ministry of Commerce spokesperson He Yadong explicitly stated that "at present there are absolutely no negotiations on the economy and trade between China and the U.S." The spokesperson advised that "all sayings" regarding progress on bilateral talks should be dismissed, and called for the cancellation of "unilateral" tariffs.

This announcement directly contradicted recent optimistic signals from Washington. Earlier this week, President Donald Trump had indicated willingness to adopt a less confrontational approach toward trade talks with Beijing, while Treasury Secretary Scott Bessent suggested the U.S. had an "opportunity for a big deal" on trade. Chinese imports currently face a U.S. tariff of 145%.

"While it's encouraging to hear a more dovish tone on tariffs from the administration, stocks remain range-bound for the time being, as the ultimate goal for markets is either a reversal of the tariffs or significant trade deals," said Gaurav Mallik, chief investment officer of Massachusetts-based Pallas Capital Advisors. "It can take a few months for corrections to end, and we still believe that this is a correction given the speed of the declines."

Corporate Earnings Mixed Picture

Several major companies reported quarterly results that moved their shares significantly. Texas Instruments surged 8.5% after delivering better-than-expected earnings for the first quarter and upbeat guidance. ServiceNow climbed 7.9% following stronger-than-anticipated earnings.

However, International Business Machines slumped more than 7% despite posting better-than-anticipated earnings and revenue, as the company maintained rather than raised its full-year guidance. CEO Arvind Krishna warned that "in the near term, uncertainty may cause clients to pause and take a wait-and-see approach."

Chipotle shares fell 3.5% after the Mexican restaurant chain posted weak revenue for the first quarter and disclosed its first same-store sales drop since 2020.

Airlines Face Turbulence

The airline industry showed signs of stress, with Southwest Airlines losing 4% after announcing plans to cut its schedule in the second half of this year. The company also withdrew its guidance for earnings before interest and taxes for 2025 and 2026.

American Airlines joined the trend, pulling its 2025 financial guidance while citing economic uncertainty. The carrier nevertheless managed to post an adjusted profit of 59 cents per share on revenue of $12.55 billion, significantly outperforming analyst expectations of a 65-cent loss.

Economic Data Surprises

Orders for durable goods jumped 9.2% in March, far exceeding the consensus forecast of a 1.6% rise. However, futures showed little reaction to the report, suggesting investors did not interpret the data as a convincing sign of economic strength.

Market Outlook Remains Cautious

Despite the recent volatility, all three major averages remain on pace for weekly gains, with the Nasdaq up 2.6%, the S&P 500 up nearly 1.8%, and the Dow on track for a 1.2% advance.

Analysts at Deutsche Bank noted that investors haven't fully priced in a potential recession yet. "It's clear that investors aren't fully pricing a recession in just yet," wrote strategist Henry Allen. "After all, the equity declines have been shallower than recent recessions, as have the widening in credit spreads and the declines in oil prices."

This incomplete pricing suggests that "significant downside risks" remain if an economic downturn materializes, particularly if the proposed tariffs come into effect after the latest 90-day extension expires.

Wolfe Research strategists Rob Ginsberg and Read Harvey cautioned about the current market dynamics in a note published Tuesday: "Bear market rallies are the most violent." They added that Tuesday's 2.5% gain in the S&P 500 showed strong internal markers, "but that's the point of the bear market rally, they make you a believer."