Trump's China visit could rattle markets if it doesn't bring an Iran breakthrough

By Isabel Wang

There are concerns that a lack of Chinese intervention in the Iran conflict could prompt renewed U.S. military action as early as next week

The U.S.-China visit could be the stock market's best hope for an Iran breakthrough

Tariffs, Taiwan, artificial intelligence - and then there's Iran.

Investors parsing this week's U.S.-China summit for good news may find missing the one that could hurt them the most in the near future.

President Donald Trump - flanked by a group of top U.S. business executives - touched down in China on Wednesday for high-profile talks with Chinese leader Xi Jinping in Beijing this week.

But with the U.S.-Iran conflict now in its third month and no resolution in sight, investors on Wall Street have been hoping that Washington can get Beijing to pressure Tehran into a deal. That makes Iran the one issue that could send markets reeling as early as next week if the leaders leave the summit without a breakthrough.

"If China is unwilling to weigh in on the matter of the U.S. and Iran, then it seems as if the window of risk for a renewal of kinetic actions against Iran begins early next week, when Trump has returned to the U.S. from China," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

See: What's at stake as Trump and an army of CEOs are in China

To be sure, China, the primary buyer of Iranian oil, has largely stayed on the sidelines during the Iran war and has avoided applying pressure on Tehran to make concessions to the U.S. It's also widely believed that the Trump-Xi talks will focus primarily on economic issues, such as extending their trade truce beyond November and securing purchase commitments in areas such as aerospace and agriculture.

"Don't expect too much to result from the meeting. Both sides are likely to portray the outcome as a success but any sort of substantial policy shift will likely prove fleeting," said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions. "Regarding Iran, China has seemingly avoided involvement in the matter and is likely to retain this posture going forward.

"No need [for China] to drag themselves into this quagmire," Janasiewicz told MarketWatch in emailed commentary on Tuesday.

See: What CEOs from Tesla, Nvidia and over a dozen other companies hope to gain by joining Trump in China

The U.S. stock market has largely tuned out the Iran war over the past month - the S&P 500 SPX has run up about 14% since the end of March - as earnings season pulled investor attention back to corporate fundamentals. Robust earnings from megacap technology firms have helped propel the S&P 500 and Nasdaq Composite COMP back into record territory.

But in the view of Macquarie Group's Wizman, that's precisely why the next wave of risk-off sentiment, potentially driven by another round of escalation in the U.S.-Iran conflict, could emerge as soon as early next week if China refuses to intervene.

The stock market's strong performance may give Trump a sense of political cover to take on more military risk next week, Wizman told MarketWatch in a phone interview on Wednesday. His team at Macquarie coined the term "SALSA" - short for "Stocks are lifting, so attack" - as the opposite to the so-called TACO trade, which stands for "Trump always chickens out."

"It could happen next week if the Iranians are not making concessions and if [Trump is] rebuffed by the Chinese, who tell him they're not going to help him here," Wizman said. "That's not my baseline view, but I can see where the risk would be building up as soon as he comes back from China."

-Isabel Wang

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05-13-26 1351ET