Markets Tick Higher on U.S.-China Trade Talk Progress

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January 9, 2019

Markets Tick Higher on U.S.-China Trade Talk Progress

The three major indexes ticked slightly higher on Monday after U.S. President Donald Trump said that talks with China on a trade deal were progressing and that weakness in the country’s economy is paving the way towards a resolution.

The Dow Jones Industrial Average was up over 50 points after rising over 700 points in last Friday’s surge. The Nasdaq Composite gained just under one percent, while the S&P 500 ticked just under 15 points higher.

Last Friday, markets soared as job growth surged to 312,000 during the month of December, handily beating economists’ expectations of 176,000 nonfarm payrolls added. The data caps off what’s been a rough start for the capital markets in 2019 amid global growth concerns.

“The January effect will likely continue, but the market will be erratic as the trade talks continue,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The real key is trade. Any sign that trade talks are going well could send the market to the upside.”

The markets were also sent higher on Federal Reserve Chairman Jerome Powell saying that the central bank will exercise more patience with respect to raising interest rates. The Federal didn’t show much dynamism in 2018 with respect to monetary policy, obstinately sticking with a rate-hiking measure with four increases in the federal funds rate.

That appears to have changed given the current economic landscape, and especially in the capital markets as Powell is now preaching patience and adaptability.

“As always, there is no preset path for policy,” Powell said. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

Volatility an Ongoing Concern

The major indexes have been racked by volatility in recent sessions as the reality that a tangible and permanent trade deal is necessary has been settling in with investors. The probability of reaching an agreement didn’t improve after news broke of Wanzhou’s arrest.

Trump and Jinping met at the G-20 Summit in Buenos Aires, putting global markets on pause as the two economic superpowers met to hopefully ameliorate their trade differences. As part of the agreement, both nations agreed to withhold imposing further tariffs on each other for 90 days while they work out a firm, ironclad deal.

The U.S. agreed to keep the current 10% tariffs on over $200 billion worth of Chinese goods while an agreement is negotiated, but will increase to 25% if no agreement is reached prior to the 90-day deadline.

“It would be premature … to consider that the volatility in the stock market will disappear and that a sustained new uptrend has begun,” said Bruce Bittles, chief investment strategist at Baird.

“Fourth-quarter earnings reports will soon be forthcoming accompanied by important guidance figures for 2019,” Bittles said. “Additionally, uncertainty lingers over trade talks with China as does the impact of the slowdown in global growth on the domestic economy.”