Trade Negotiations Bring Optimism to Wall Street

February 13, 2019
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Stock futures were up on Tuesday, largely thanks to optimism surrounding trade negotiations. Strong rhetoric and tit-for-tat tariffs were near-constant in the news throughout 2018. Trade, along with other market factors, contributed to volatility and record slides. This year, trade news has a different impact. The latest stories give hope to investors. Some even believe that the prolonged trade war is ending.

Futures and Stocks Ended Higher on Tuesday

Both stocks and futures were up at the close of market on Tuesday. The stock market is showing signs that January’s rally was more than a short trend. Both trade news and stable rates have put investors at ease, even as earnings growth is slowing.

President Trump said on Tuesday that he could extend a March 2 deadline for trade talks. He told media “If we’re close to a deal, where we think we’re going to make a real deal and it’s going to get done, I can see myself letting that [deadline] slide for a little while.”

Trump did note that “generally speaking, I’m not inclined to do that,” reinforcing the point that it would be a conditional decision.

A U.S. trade delegation is also in China this week, working towards a deal that would be accepted by both sides. Treasury Secretary Steven Mnuchin is in China for the talks. He told reporters on Tuesday that he was expecting “productive meetings.”

What Happens if a Deal Isn’t Made?

There is clear urgency on both sides to reach an acceptable agreement. However, this is no guarantee that a deal will be made.

If  trade negotiations aren’t successful, President Trump could increase tariffs on Chinese goods. Existing tariffs are applied to $200 billion of Chinese imports at a rate of 10%. If the deadline is not met or if Trump doesn’t see progress, the rate would increase to 25%.

China would likely retaliate with its own measures, including ceasing auto and soy imports from the U.S.

American consumers would be hit as the price of Chinese-made goods would increase. Producers in agriculture and energy would also be affected, losing potential revenue.

Trade Negotiations Hope Riding on a Favorable Outcome

Continued good news from Washington would help to sustain the market’s current performance. However, investors should also be prepared for no deal. Portfolio diversification and well-informed and researched investment decisions should prevail over hasty reactionary trading.

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