Recession odds at Kalshi drop as markets rebound (Image Credit: Shutterstock)
In a significant development, the United States and China have agreed to a 90-day reduction in tariffs, temporarily alleviating trade tensions that have weighed heavily on global markets. This accord has not only propelled stock indices to notable gains but has also influenced prediction markets, reflecting a shift in economic sentiment.
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The announcement has led to substantial gains across major stock indices. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq surged significantly, marking their largest single-day gains since April 9. Retail and technology sectors experienced significant upticks, with companies like Amazon, Apple, and Nvidia posting notable gains.
The agreement lowered tariff levels far more than Wall Street expected, with one analyst, Dan Ives of Wedbush Securities, calling the deal a “best-case scenario” for investors. Goldman Sachs cut its U.S. recession odds from 45% to 35% and boosted its growth forecast.
The tariff agreement has had a pronounced impact on prediction markets. On Kalshi, a federally regulated prediction market platform, the probability of a U.S. recession occurring in 2025 has dropped all the way down to 36%, down from its highest at 72% prior to the agreement. Similarly, the likelihood of the U.S. tariff rate on China being 49.99% or below by May 31, 2025, has surged to 93%, indicating strong market confidence in sustained tariff reductions.
These shifts suggest that market participants are optimistic about the short-term economic outlook, anticipating that reduced trade barriers will bolster growth and delay potential recessionary pressures.
Understanding the reduced tariff agreement between the U.S. and China
Speaking at a White House press conference, Trump said the agreement marked a breakthrough. “They’ve agreed to open up China,” he said, characterizing the deal as a turning point after months of rising friction.
The announcement followed high-level talks in Geneva, where U.S. Treasury Secretary Scott Bessent said negotiators from both sides had approached the table with “great respect.”
“The consensus from both delegations this weekend was that neither side wants a decoupling,” Bessent told reporters, signaling a shared interest in stabilizing economic ties.
American businesses reliant on Chinese imports have expressed cautious relief. While the tariff reductions provide short-term respite, concerns remain about the temporary nature of the agreement and the potential for future trade disruptions. Companies are adjusting their supply chains and inventory strategies to navigate the ongoing uncertainty.
The 90-day tariff reduction period offers a window for further negotiations between the U.S. and China. While markets have reacted positively, the long-term resolution of trade tensions remains uncertain. Investors and businesses will be closely monitoring developments, with prediction markets serving as a barometer for public sentiment and expectations.
How to bet on recession prediction markets at Kalshi
Prediction markets like Kalshi allow participants to trade contracts based on the outcomes of future events. Each contract has a “Yes” or “No” outcome, priced between $0 and $1, reflecting the market's consensus probability of the event occurring.
For instance, a contract priced at $0.92 for a “Yes” outcome implies around a 92% probability of that event happening. If the event occurs, holders of the “Yes” contract receive $1; if not, they receive nothing.
As of May 14 at Kalshi, you can buy “Yes” contracts for a recession happening in 2025 at $0.37. If you’re right, each contract would pay out $1 for a profit of $0.63 for each contract. On the flipside, “No” contracts are $0.64 for a potential profit of $0.36 for each if there are not two consecutive quarters of negative GDP growth in 2024 or 2025, as determined by the Bureau of Economic Analysis.
These markets serve as tools for gauging public sentiment and expectations on various topics, from economic indicators to political events. They are also possible hedge opportunities for regular people.
Looking ahead, trading volatility
While the current tariff reduction is temporary, its immediate effects on markets and economic forecasts are evident. Investors and analysts will closely monitor ongoing negotiations between the U.S. and China, as well as subsequent movements in prediction markets, to assess the potential for a more permanent resolution to trade tensions.
For those interested in exploring prediction markets further, Kalshi offers a range of contracts on economic and political events, providing insights into market expectations and potential hedging opportunities.
