Dow surges about 185 points as latest US-China trade barbs are not as bad as feared

  • China announced tariffs targeting $60 billion worth in U.S. products after the United States slapped tariffs on $200 billion worth in Chinese goods.
  • However, China also said it will put a 10 percent tariff on some goods it had previously earmarked for a 20 percent levy.
  • "The market is thinking this wasn't the worst-case scenario," says Daniel Deming, managing director at KKM Financial. "That's why you're seeing this pseudo-rally taking place."

Stocks rose on Tuesday as the latest tariffs on U.S. and Chinese goods are not as bad as previously feared. Strong gains in tech also lifted the broader market.

The Dow Jones Industrial Average surged 188.84 points to 26,246.96 as Nike and Boeing outperformed. The 30-stock Dow also posted its fifth positive day in six.

The S&P 500 gained 0.5 percent to close at 2,904.31, led by consumer discretionary and industrials. The S&P 500 is also less than half a percent removed from its record high. The Nasdaq Composite advanced 0.8 percent to 7,956.11 as Netflix, Amazon, Apple, and Alphabet closed higher.

China announced tariffs targeting more than 5,000 U.S. products will go into effect on Sept. 24. The goods targeted are worth approximately $60 billion. However, China will put a 10 percent tariff on some goods it had previously earmarked for a 20 percent levy. The announcement comes after the Trump administration announced the U.S. will impose 10 percent tariffs on $200 billion worth of Chinese imports, and those duties will rise to 25 percent at the end of the year.

"The market is thinking this wasn't the worst-case scenario," said Daniel Deming, managing director at KKM Financial. "That's why you're seeing this pseudo-rally taking place."

Deming added that strong gains in Asian markets also lifted investor sentiment. "Once we saw the Asian market had the ability to rally, most of the major indexes across the globe got their cue from that," he said. The Shanghai Composite rose nearly 2 percent while the Japanese Nikkei gained 1.4 percent overnight.

Commerce Secretary Wilbur Ross said the new tariffs are aimed at modifying China's behavior and leveling the playing field for U.S. companies there. China is "out of bullets" to retaliate, Ross told CNBC's "Squawk Box."

The tariffs from both countries come after multiple news outlets reported U.S. officials were trying to restart U.S.-China trade talks.

"At least for now, instead of getting us closer to the bargaining table with China, we've only pushed them further away as they are likely canceling their trip to the US," said said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

President Donald Trump tweeted there will be "fast economic retaliation against China" if U.S. farmers, ranchers or industrial workers are targeted.

The announcements also come after National Economic Council Director Larry Kudlow told CNBC's Becky Quick that Trump has "not been satisfied" with the trade talks with Beijing.

Caterpillar and Boeing — considered trade bellwethers for their large overseas exposure — rose 1.95 percent and 2.1 percent, respectively.

Fears of escalating trade tensions between the U.S. and China knocked equities off of record highs set last month. The S&P 500 and Nasdaq set all-time highs to end August. This month, however, both indexes are down 0.4 percent and 2.6 percent, respectively, through Monday's close.

Tech shares bounced back after steep losses in the previous session. Amazon rose 1.7 percent after posting its worst day since April on Monday. Netflix and Apple, meanwhile, rose nearly 5 percent and 0.2 percent, respectively. The overall tech sector rose 0.6 percent after dropping 1.4 percent on Monday.

WATCH: Uncertainty over tariffs will impact earnings