For most of last week, updates on trade negotiations were minimal, prompting markets to shift their focus toward sentiment indicators and inflation data—which largely came in better than many analysts had expected. However, by Thursday and Friday, concerns about U.S.–China trade talks began to re-emerge on the market’s radar.

The conversation was reignited by Treasury Secretary Scott Bessent during a Fox News interview, where he acknowledged that negotiations between the U.S. and China were "a bit stalled." He pointed to ongoing disputes over U.S. technology exports to China and China’s rare earth mineral exports to the U.S. as persistent sticking points. Still, Bessent struck a cautiously optimistic tone, suggesting that a direct conversation between President Trump and President Xi may be necessary to break the impasse.

Although Bessent’s comments generated some intraday volatility, equity markets were largely able to shrug them off, focusing instead on earnings results from Nvidia (NVDA) and other major tech headlines. But by Friday, President Trump added fuel to the fire on social media, accusing China of "violating" the Geneva trade agreement in mid-May. He followed this with a sharply worded statement: “So much for being Mr. NICE GUY!” The remark triggered a brief mid-day selloff in U.S. equities, though markets recovered later in the session—highlighting two critical dynamics at play.

First, after months of relentless headlines around trade deals, market participants appear to be reacting less aggressively to each new development. It’s possible that investors have already priced in the likelihood that negotiations with China could take significantly longer than initially hoped. This could give equity bulls a short-term edge, as markets exhibit growing resilience to geopolitical noise.

However, this same resilience could also cause complacency. If a more substantial catalyst emerges—such as economic data pointing to a resurgence in inflation due to tariffs, or a sharp decline in labor market conditions—markets could be caught off guard. Such scenarios could spark a sudden spike in volatility, and liquidity could evaporate quickly.

For now, the S&P 500 remains above key technical support levels. But under the surface, liquidity—as measured by the CME Liquidity Tool—is beginning to show signs of deterioration. This thinning market depth could leave equities vulnerable to sharper swings if a more disruptive headline or macro shock materializes. But for now, the trend has been the friend for many so far.

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