By Anora M. Gaudiano and Barbara Kollmeyer, MarketWatch

China to reduce import duties on passenger cars

U.S. stocks were mostly higher on Tuesday afternoon, as investors remained cautious about trade tensions between the U.S. and China despite recent signs of easing on both sides.

Read: Meet 'green gold' -- and the stock for betting on it (http://www.marketwatch.com/story/meet-green-gold-and-the-stock-for-betting-on-it-2018-05-22)

What are markets doing?

The S&P 500 rose 5 points, or 0.2%, to 2,737 with eight of its 11 main sectors trading higher. Financials and telecoms were leading the gains, up about 1%.

The Nasdaq Composite Index was up 12 points, or 0.2%, to 7,405.

The Dow Jones Industrial Average retreated, to trade 22 points, or 0.2%, lower at 24,991.

The small-cap benchmark Russell 2000 index added 1 points to 1,638 after scoring its latest in a series of records on Monday (http://www.marketwatch.com/story/russell-2000-hits-record-in-early-trading-2018-05-21).

Opinion: Here's what the Russell 2000's new high means for the S&P 500 (http://www.marketwatch.com/story/heres-what-the-russell-2000s-new-high-means-for-the-sp-500-2018-05-22)

Read:The strong dollar is a stock-market drag and poses a threat to earnings growth (http://www.marketwatch.com/story/the-strong-dollar-is-a-stock-market-drag-and-poses-a-threat-to-earnings-growth-2018-05-19)

What's driving the market?

The Chinese government said Tuesday that it will cut import duties on passenger cars as of July 1 to 15% from the current 25%. And the U.S. and China are also reportedly nearing a deal to settle a controversy over Chinese telecom group ZTE Corp. (http://www.marketwatch.com/story/us-china-near-deal-that-would-ease-off-zte-ban-2018-05-21)

Other geopolitical tensions continue to hover in the background, with uncertainty over a historic meeting between U.S. President Donald Trump and North Korea's dictator Kim Jong Un. Vice President Mike Pence warned in an interview late Monday that North Korea cannot "play" Trump (http://www.marketwatch.com/story/north-korea-cannot-play-president-trump-warns-pence-2018-05-22) (http://www.marketwatch.com/story/north-korea-cannot-play-president-trump-warns-pence-2018-05-22) where nuclear disarmament is concerned.

Meanwhile, laying out new demands for Iran on Monday (http://www.marketwatch.com/story/pompeo-lays-out-trump-administrations-demands-for-new-iran-deal-2018-05-21), the White House said any new nuclear deal with the U.S. would require Iran to stop enriching uranium and to pull its support for militant groups in the Middle East. The demands were met by immediate rejection from Iran.

Read:Here's the hidden stock-market risk investors need to watch out for (http://www.marketwatch.com/story/heres-the-hidden-stock-market-risk-investors-need-to-watch-out-for-2018-05-22)

What are strategists saying?

"We are far from being out of the woods when it comes to trade negotiations with China, but hopeful that we are moving in the right directions and markets are optimistic about the progress," said Lindsey Bell, investment strategist at CFRA.

However, Bell warned that any number of current geopolitical concerns could bring back volatility.

"The next six months may be rocky, especially given we are in an election year as well, when second- and third-quarter returns tend to be weaker. Volatility could return significantly," Bell said.

What stocks are in focus?

Toll Brothers Inc.(TOL) shares slumped 8.2% after the building company posted a 10% fall in second-quarter profit (http://www.marketwatch.com/story/toll-brothers-profit-dented-by-higher-charges-2018-05-22) on higher impairment charges, and said gross margin fell.

Kohl's Corp.(KSS) gave up premarket gains that were fueled by better-than-expected earnings and upbeat outlook (http://www.marketwatch.com/story/kohls-shares-jump-after-earnings-beat-guidance-raised-2018-05-22), and turned negative to trade 2.3% lower.

Shares of Micron Technology Inc.(MU) rallied 7% after the company raised its third-quarter outlook. On Tuesday a number of analysts upgraded their ratings on the stock.

AutoZone Inc.(AZO) shares rose 4.4% after the company blew past profit estimates for the first quarter (http://www.marketwatch.com/story/autozone-shares-jump-3-premarket-after-profit-blows-past-estimates-2018-05-22).

TJX Companies Inc.(TJX) shares rose 1.2% after the retailer's quarterly earnings came above estimates.

Hewlett Packard Enterprises Co.(HPE), Intuit Inc.(INTU) and Red Robin Gourmet Burgers, Inc.(RRGB) will report after the close.

Read:GreenSky IPO: 5 things to know about the company seeking to end fintech IPO lull (http://www.marketwatch.com/story/greensky-ipo-5-things-to-know-about-the-company-seeking-to-end-fintech-ipo-lull-2018-05-21)

Sony Corp.(6758.TO), (6758.TO) shares fell 1.4% after the Japanese multinational conglomerate said it has agreed to buy Mubadala Investment Co.'s stake in EMI Music Publishing (http://www.marketwatch.com/story/sony-to-buy-mubadalas-stake-in-emi-music-for-about-23-billion-2018-05-21), in a roughly $2.3 billion deal.

Read:Netflix's new running mates: Barack and Michelle Obama (http://www.marketwatch.com/story/netflixs-new-running-mates-barack-and-michelle-obama-2018-05-21)

What are other markets doing?

Asian markets finished mixed (http://www.marketwatch.com/story/nikkei-pulls-back-from-3-month-high-as-asian-markets-dip-2018-05-21), while European stocks inched higher (http://www.marketwatch.com/story/european-stocks-inch-higher-as-italy-tensions-ease-for-now-2018-05-22).

Read:'Greek-like crisis' fears hang over Italy's markets as populists ready government (http://www.marketwatch.com/story/greek-like-crisis-fears-hang-over-italys-markets-as-populists-ready-government-2018-05-21)

The dollar was continuing to retrace gains on Tuesday, while the 10-year U.S. Treasury note yield (http://www.marketwatch.com/story/treasury-yields-inch-higher-but-italian-rates-pull-back-as-politics-remain-in-focus-2018-05-22) was hovering around 3.07% after touching a seven-year intraday high of 3.126% on Friday (http://www.marketwatch.com/story/government-bonds-rally-as-geopolitics-reignite-buying-10-year-retreats-from-310-2018-05-18). (http://www.marketwatch.com/story/government-bonds-rally-as-geopolitics-reignite-buying-10-year-retreats-from-310-2018-05-18) (http://www.marketwatch.com/story/government-bonds-rally-as-geopolitics-reignite-buying-10-year-retreats-from-310-2018-05-18)

U.S. oil futures rose 0.6% to $72.75 a barrel (http://www.marketwatch.com/story/oil-prices-hover-at-3-12-year-highs-on-global-supply-worries-2018-05-22), lifted by growing concerns over global supply given worries Venezuela and Iran could come under new sanctions by the U.S.

Economic preview:Rising rates, higher gas have failed to kill the economic expansion (http://www.marketwatch.com/story/us-economy-charts-steady-course-despite-stronger-headwinds-2018-05-18)

See:Stock-market investors have fewer excuses for shunning bonds (http://www.marketwatch.com/story/stock-market-investors-have-fewer-excuses-for-shunning-bonds-2018-05-21)

Gold futures inched up 0.1% to $1,292.00 an ounce. The ICE U.S. Dollar Index fell 0.2% to 93.530, as the pound strengthened against the buck .

Bank of England policy maker Gertjan Vlieghe reportedly predicted up to two interest-rate increases a year (https://www.theguardian.com/business/live/2018/may/22/bank-of-england-governor-mark-carney-grilling-mps-rates-uk-economy-business-live), as officials testified in front of the U.K. Treasury committee.

(END) Dow Jones Newswires

May 22, 2018 12:32 ET (16:32 GMT)