Stocks rallied Tuesday on hopes that U.S.-China trade tensions could ease soon, as investors recovered from the steep declines suffered in the previous session.

The Dow Jones Industrial Average rose 1,016.57 points, or 2.66%, to close at 39,186.98. The S&P 500 gained 2.51% and settled at 5,287.76, while the Nasdaq Composite rose 2.71% to end at 16,300.42.

The major averages spiked on news that Treasury Secretary Scott Bessent told a group of investors Tuesday that there "will be a de-escalation" in the trade war with China. "No one thinks the current status quo is sustainable," he said during a meeting with investors hosted by JPMorgan Chase, according to a person in the room. The meeting was first reported by Bloomberg News.

At its peak, the Dow was up more than 1,100 points on the day. However, stocks eased from those levels as Bessent also noted that, "If we walk out the door of negotiations and signed something in two or three years that looked like that, I would think that it's a huge win."

Stocks closely tied to China got a boost on the news. The iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) were both up about 3%.

"Bessent is obviously trying to send a signal with that comment, and that signal would seem to be that we know this is hurting markets and we're in a hurry to wrap it up," said Jed Ellerbroek, portfolio manager at Argent Capital Management. "The market will interpret that as good news that will cause it to rally and adjust its expectations for where the final resting place for this trade war is in a couple months."

Tuesday's gains erased the sharp losses suffered in the previous session. The Dow dropped more than 970 points, while the S&P 500 and Nasdaq both slid more than 2%.

Rising trade fears have sent equities tumbling in recent weeks. Since April 2, when President Donald Trump unveiled a slate of tariffs on imported goods from many countries, the S&P 500 is down more than 6%.

Investors grew increasingly uncertain after Trump posted on Truth Social that the economy would slow if the Federal Reserve did not cut interest rates. In the latest of multiple recent posts calling out Chair Jerome Powell by name, he called the Fed chief "Mr. Too Late" and a "major loser."

Trump hinted at Powell's "termination" last week, an unprecedented action that White House economic advisor Kevin Hassett said the president's team was currently studying. Powell has said he cannot be fired under law and intends to serve through the end of his term in May 2026.

"Lots of uncertainty, not lots of answers, kind of a frustrating environment today for investors," Ellerbroek added. "The one feeling that I feel like I can identify is the longer we remain in this limbo, the worse it gets for the economy."