US stocks gain on optimism over China-US trade talks

US stocks closed higher on Tuesday as investors monitored ongoing trade discussions between China and the United States, fueling hopes for progress in easing global economic tensions.

The Dow Jones Industrial Average rose by 105.11 points, or 0.25 percent, to close at 42,866.87. The S&P 500 gained 32.93 points, or 0.55 percent, to settle at 6,038.81, while the Nasdaq Composite Index climbed 123.75 points, or 0.63 percent, ending the day at 19,714.99.

Gains were broad-based, with 10 of the 11 primary S&P 500 sectors finishing in green. Energy and consumer discretionary stocks led the advance, rising 1.77 percent and 1.19 percent, respectively. Industrials was the only sector to decline, slipping 0.44 percent.

Trade negotiations between Chinese and US officials in London entered their second day on Tuesday. US Commerce Secretary Howard Lutnick expressed the optimism that the talks could wrap up by Tuesday night, though he acknowledged they may extend into Wednesday if necessary.

Markets have rallied through the early part of June, buoyed by investor optimism surrounding trade diplomacy and ongoing signs of economic strength. "Technically, shares have been on a nice run eclipsing key levels to get back on track. Longer-term they started the week right above its downtrend line going back to its annual highs," said Jay Woods, chief global strategist of Freedom Capital Markets.

Tesla shares surged 5.67 percent on Tuesday, extending a rebound that began earlier this week following a steep sell-off tied to the high-profile dispute between Tesla CEO Elon Musk and US President Donald Trump. The electric vehicle maker's stock has now recovered a significant portion of last week's losses.

Other mega-cap technology stocks also ended the day mostly higher. Alphabet and Meta Platforms each gained more than 1 percent, while Apple rose 0.61 percent, recovering modestly after a dip on Monday triggered by lackluster reactions to its Worldwide Developers Conference.

Despite the market's recent strength, the World Bank issued a cautionary note on the US economic outlook, becoming the latest global institution to highlight risks posed by trade uncertainty. In its updated forecast, the bank projected US economic growth of just 1.4 percent in 2025, down sharply from the 2.8 percent rate recorded in 2024.

Some strategists are also cautious about the longer-term picture. Analysts at HSBC noted that while global equities may continue climbing over the next three months, the outlook beyond that appears more uncertain. "Medium term (6 months+) the risk/reward is looking more unbalanced, with markets trading near their highs, recession fears appear largely priced out and the structural pillars supporting US exceptionalism at risk of being undermined," strategist Alastair Pinder wrote in a note Tuesday.