Wall St. is bullish on Trump trade truce
Dow’s 288-point rise leads market rally
Stocks kicked off the week with a rally, boosted by President Donald Trump’s trade truce with China and a de-escalation of tensions that have been weighing on markets for months.
The Dow Jones industrial average closed up 288 points, or 1.1 percent higher, at 25,826.
Investors got as good an outcome as they could have expected from this weekend’s meeting between Trump and Chinese counterpart Xi Jinping. The U.S. backed off on its threats to boost the level of tariffs already in place on Chinamade goods from 10 to 25 percent on Jan. 1. Trump also held off on initiating fresh tariffs on another $267 billion in Chinese goods during a 90-day ceasefire agreement set to go into effect at the start of 2019. Beijing agreed to make a “very substantial” purchase of many U.S. goods, including agriculture products.
The cease-fire in the trade spat is seen as “alleviating a major overhang” for financial markets, although a “permanent truce” has yet to be reached, Julian Emanuel, an equity strategist at BTIG, a global financial services firm with offices in New York, noted in a report.
“Negotiations over those 90 days will no doubt be rocky, but this is the all-clear signal that nobody is going to walk off a cliff,” noted Donald Luskin, chief investment officer at research firm TrendMacro.
Stocks have been very volatile since the Standard & Poor’s 500 stock index hit its high for the year Sept. 20. The broad market index is now 4.8 percent off its record closing high.
Here are three reasons why Wall Street is viewing the 90day negotiation period in a positive light:
❚ Good signal for economy:
Fears of a global slowdown due to slowing sales, higher prices and product supply chain disruptions caused by tariffs has been a top worry for markets since the tiff between the U.S. and China emerged early this year. The hope is the 90-day cooling-off period will lead to fairer trade terms, lower tariffs or perhaps the complete elimination of these trade levies, paving the way for fewer obstacles in the world economy.
“The truce ... has gone some way in calming investor fears over the state of global growth,” Dean Popplewell, vice president of market analysis at currency trading firm Oanda, said via email.
❚ Bolsters outlook for U.S.
sales to China: Trade tensions and import levies have been a negative for big U.S. companies that do a lot of business in China, such as heavy equipment maker Caterpillar and airplane producer Boeing.
China’s promise to buy more goods from U.S. companies, including industrial and energyrelated products, as well as to open their markets to foreigners, is seen boosting the sales and profits of companies that
get a sizable chunk of their business from China.
Caterpillar shares rallied 2.4 percent and Boeing’s stock rose nearly 4 percent on Monday following the weekend truce.
Trump’s tweet late Sunday saying China will remove or reduce the current 40 percent tariff on U.S.-built autos sold in China also provided a lift to U.S. automakers in Monday trading. Shares of Ford and General Motors were up 2.1 and 1.3 percent, respectively. ❚ Positive step for tech
companies: U.S. tech companies, many of which assemble their high-tech components and gadgets in China, will get a reprieve.
Among the biggest beneficiaries, he notes, is Apple, which builds its iPhones in China, and semiconductor companies that make their computer chips there.
Most important for Apple is that specific new tariffs as high as 25 percent targeting its iPhones and laptops are “now off the table,” Ives says. “That would have been a tough gut punch to absorb” for Apple.
Apple shares closed 3.6 percent higher.
The thaw in U.S.-China trade relations has boosted Wall Street investors’ hopes for an eventual deal.