ANALYSIS-After strong 2019 start for U.S. stocks, trade verdict looms
(Repeats Feb. 15 story with no change to text)
By Lewis Krauskopf and Caroline Valetkevitch
NEW YORK, Feb 15 (Reuters) - Optimism about a U.S.-China
trade agreement has helped drive U.S. stocks to more than
two-month highs, creating a make-or-break moment for Wall Street
as a year-long clash between the world's two largest economies
comes to a head.
Investors are increasingly hopeful about a positive
resolution as a March 1 deadline for trade talks nears. And if
the United States and China reach a deal, market professionals
say clarity after the lengthy dispute should continue to push
“If we do get a China-U.S. solution and trade agreement,
which signs are more positive on that front, that could really
propel stocks higher because that would give businesses more
confidence in the global economy,” said Chris Gaffney, President
of World Markets at TIAA Bank in St. Louis.
A few market watchers even say the benchmark S&P 500
could exceed its all-time closing high set on Sept. 20, which is
about 6 percent above Friday's level.
That would build on the more than 17 percent surge in the
S&P 500 since it hit a 20-month low on Dec. 24, when investors
were spooked by Federal Reserve policy as their outlook for
earnings and economic growth soured.
But stocks would be vulnerable should talks collapse and the
United States hike tariffs to 25 percent on $200 billion of
Although investors increasingly believe a more accommodative
Fed now provides protection from a drop, some say a significant
trade disappointment could send stocks plunging.
"If talks fail and additional tariffs are applied, I do
believe stocks could fall through their December 24th lows,"
said Kristina Hooper, chief global market strategist at Invesco
in New York.
The drumbeat of global trade developments has convulsed
markets since U.S. President Donald Trump announced tariffs on
steel and aluminum imports a year ago, sparking concerns that a
full-blown trade dispute would undermine the global economy.
Investors had zeroed in on March 1 as a potential
culmination of the U.S.-China dispute since Trump and Chinese
President Xi Jinping late last year shelved any new tariffs and
reset discussions for 90 days.
Trump said on Friday he may extend the deadline for a deal
while keeping current tariffs in place.
“If it’s a six-month delay, that’s a problem," said Michael
O’Rourke, chief market strategist at JonesTrading in Greenwich,
Connecticut. "Because then you just leave this issue lingering
out there for quite some time."
Trade talks resume next week in Washington, with both sides
saying this week's negotiations in Beijing made progress.
Should the countries reach a deal, the size of the market
reaction will likely rest on the details of the agreement.
In talks this week, the countries focused on technology,
intellectual property rights, agriculture, services, non-tariff
barriers and currency, and potential Chinese purchases of U.S.
goods and services, according to the White House.
Stocks' response could also depend on how much prices
already reflect the decision and if any other major
market-sensitive issues such as weakening economic data have
"There is growing optimism that a deal gets done and I think
that is increasingly reflected at these prices,” said Walter
Todd, chief investment officer at Greenwood Capital in
Greenwood, South Carolina.
Anthony Saglimbene, global market strategist at Ameriprise
Financial in Troy, Michigan, doubted the talks would collapse,
noting "the markets have pressured the U.S. and China enough to
bring both countries to the bargaining table, and for various
reasons, a temporary deal or ceasefire extension is the most
"Risk assets across the spectrum would see severe selling
pressure if trade talks completely collapsed and tariff rates
rose," Saglimbene said.
BOON FOR BIG COMPANIES
Some investors believe stocks have almost fully priced in a
deal, leaving little room for further gains.
An up to 2 percent spike might occur if a deal is reached,
O'Rourke said, adding: "I would be surprised if you get much
further than that on the initial news.”
Large multinational companies stand to see the biggest share
gains from any trade deal, with big tech companies potentially
heading back toward historic highs, said Rick Meckler, partner
at Cherry Lane Investments in New Vernon, New Jersey.
The market's recent climb has come even as analysts lowered
estimates for 2019 U.S. corporate earnings growth, undercutting
a fundamental support for stocks.
But a trade deal that avoids more severe tariffs could help,
since many companies prepared investors for the worst.
A Bank of America Merrill Lynch review of earnings calls
this week found many companies citing an impact from the trade
dispute baked a 25 percent tariff hike in March into their
“There could be an upside surprise to earnings if we get
some sort clarity on trade,” said Katie Nixon, chief investment
officer at Northern Trust Wealth Management in Chicago.
(Reporting by Lewis Krauskopf; Editing by Alden Bentley and
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