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Stocks Rise After U.S. and China Put Trade War on Hold Stocks Rise After U.S. and China Agree to Put Trade War on Hold
(about 4 hours later)
Stocks rose on Wall Street Monday after President Trump and President Xi Jinping of China reached a truce in the countries’ trade war. Stocks rose on Wall Street Monday after President Trump and President Xi Jinping reached an agreement to ease trade tensions between the United States and China.
Shares of industrial stocks rose, as exporting giants such as Boeing, Caterpillar and Deere pulled the export-reliant S&P 500 industrial sector higher. Semiconductor makers, which have been hurt by the potential for the trade war to disrupt their widespread production networks in Asia, rose as well. Exporting giants such as Boeing, Caterpillar and Deere pulled the export-reliant S&P 500 industrial sector higher. Semiconductor makers, which have been hurt by the trade war’s potential to disrupt their widespread production networks in Asia, rose as well.
Those early gains, however, were tempered by doubts that the fragile cease-fire — essentially a 90-day postponement of planned additional American tariffs on Chinese imports — would put the dispute between the world’s two largest economies to rest permanently. Still, early gains were tempered by doubts that the fragile cease-fire — essentially a 90-day postponement of additional American tariffs on Chinese imports — would put the dispute between the world’s two largest economies to rest permanently.
After gaining nearly 1.4 percent in early trading Monday, the S&P 500 was up by less than 1 percent by late morning. The S&P 500 was up by just over 1 percent by midafternoon, after rising nearly 1.4 percent in early trading.
“Just because they have a truce for three months doesn’t mean this thing is going away,” said Jurrien Timmer, director of global macro at asset manager Fidelity Investments in Boston. “Just because they have a truce for three months doesn’t mean this thing is going away,” said Jurrien Timmer, director of global macro at the asset manager Fidelity Investments in Boston.
The rally in American stocks followed solid increases in Asian and European equity markets. Earlier, Asian and European equity markets posted solid increases. Chinese shares climbed more than 2.5 percent, while stocks in Germany, an export-focused economy with strong trade ties to China, rose nearly 2 percent.
Overnight, Chinese shares had led the rise, climbing more than 2.5 percent, with the market in Hong Kong following closely. Investors elsewhere were more restrained, sending shares up less than 2 percent in Australia, Japan and South Korea. Other markets responded in kind to the trade truce, which was reached Saturday in Buenos Aires. Soybeans rose on commodities markets on the prospect that China would begin to buy American crops again. China’s currency, the renminbi, strengthened against the United States dollar.
Stocks in Germany, an export-focused economy with strong trade ties to China, rose nearly 2 percent. The détente, forged by Mr. Trump and Mr. Xi over a dinner, merely postpones a larger reckoning over trade. Under the deal, the United States will postpone an increase in tariffs that was set to be imposed Jan. 1, and it sets a March 1 deadline for the countries to reach a more extensive pact.
Other markets responded in kind to the trade truce, which was reached Saturday in Buenos Aires. Soybeans rose on commodities markets on the prospect that China would begin to buy American-grown crops again. China’s currency, the renminbi, strengthened against the United States dollar.
The détente, forged over a dinner between the leaders of the world’s two largest economies, merely postpones a larger reckoning over trade. Under the deal, the United States will postpone an increase in tariffs that were set to be imposed Jan. 1, and it sets a March 1 deadline for the countries to reach a more extensive pact.
The deal leaves in place American tariffs on $250 billion in Chinese goods and the retaliatory measures enacted by Beijing. It is unclear whether the countries can resolve such thorny questions as the Chinese government’s support for sensitive industries and protections for American-created intellectual property.The deal leaves in place American tariffs on $250 billion in Chinese goods and the retaliatory measures enacted by Beijing. It is unclear whether the countries can resolve such thorny questions as the Chinese government’s support for sensitive industries and protections for American-created intellectual property.
But given the issues that remain unresolved between China and the United States, investor enthusiasm may be fleeting. Still, the relatively good outcome of the meeting between Mr. Xi and Mr. Trump adds to the sense of relief for investors. A range of worries — about the Federal Reserve’s plans to continue raising interest rates, the impact of the midterm elections in the United States, the trade war and signs of slowing global growth — weighed on stocks in October and November. After it peaked on Sept. 20, the stock market’s gains for the year melted away as the S&P 500 slumped more than 10 percent through Nov. 23.
“We anticipate that things are still likely to get worse before they get better,” Kerry Craig, global market strategist for the asset management arm of JPMorgan, said in an emailed statement. Several recent developments had also helped allay those concerns.
“Small rays of light such as this create tactical opportunities for investors,” he added, “but on balance we would be more cautious on positioning heading into 2019.” Last week, the Fed chairman, Jerome H. Powell, sparked a rally in the stock market when he said interest rates were “just below” a range of estimates for the neutral level, meaning the Fed was nearing the point where it would not be tapping on the brakes or pressing on the gas on the American economy. His statements raised investor hopes that the Fed might not lift interest rates as high as previously thought.
Chinese investors were perhaps more cheered in part because the official media there de-emphasized the temporary nature of the agreement. It also played down continued areas of disagreement, such as intellectual property protections. Meanwhile, the just-completed third-quarter earnings season showed corporate profits remained strong.
The midterm elections on Nov. 6 went largely as expected, with Democrats taking control of the House of Representatives and Republicans retaining control of the Senate.
“What were the worry points? Earnings and sales, the election, China, interest rates,” said Richard Nackenson, a portfolio manager at the asset management firm Neuberger Berman. “Wow, guess what. It’s all been mitigated.”
Mr. Nackenson stressed, however, that the market’s worries had not been resolved.
On Monday, the Russell 2000 index of small capitalization stocks, made up of companies that are typically more sensitive to the health of the American economy, didn’t fare as well as the broader markets. And the yield on the 10-year Treasury note, often viewed as a barometer for growth and inflation, slipped to 2.99 percent.
Investors are also acutely aware that with the conflict between China and the United States far from resolved, stock market enthusiasm may be fleeting.
“We see it obviously as a positive that there is a pause in the trade war talk,” said Richard Weiss, chief investment officer for multi-asset strategies at American Century Investments. “But it could reignite at any moment.”