Stocks in a Sea of Green, Buoyed by China
Stocks started the week on a strong footing, with all three major US indices — the Dow, Nasdaq and S&P 500 — all trading in the green. China is largely to thank amid a deal that was reached over the weekend with the United States to suspend a trade war that was threatening to unfold. The Dow advance more than 300 points, with the index revisiting March highs and trading comfortably above the $25,000 threshold, while the Nasdaq and S&P 500 were each up nearly 1%.
US Treasury Secretary Steven Mnuchin set the stage for gains over the weekend, when he disclosed that the trade war was “on hold” and that the United States would refrain from assigning tariffs to Beijing and vice versa amid productive discussions. The world’s two largest economies were at stake, with the United States and China poised to attach tariffs of $150 billion and $50 billion on China and US imports, respectively.
There was early confusion when a US trade representative seemingly countered the progress, but by Monday morning Secretary Mnuchin suggested that while President Trump could change his mind, a trade war is off the table — at least for now. The somewhat mealy-mouthed response may suggest that the market rally could have more steam left once any and all signs of an impending trade war are put to rest.
Further concerns were resolved in a tweet –
China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!
— Donald J. Trump (@realDonaldTrump) May 21, 2018
‘All Is Fair in Love and War’
Putting the kibosh on a brewing trade war sent many sectors higher, from high-tech to agriculture including farm equipment maker Caterpillar, which advanced 4% on the development that President Trump tweeted about above.
American farmers were at risk of taking the brunt of a US/China trade war, given that China had threatened to place tariffs on ag products like soybeans, hogs and pork. In addition to Caterpillar, Deere & Co, which is behind the famous green John Deere tractors, climbed 3% higher.
But the trade reversal took the wind out of the sails of steel stocks, which would have benefitted greatly from the double-digit percentage tariffs that President Trump was prepared to attach on China’s steel imports. US Steel was hit especially hard, shedding nearly 5% early in Monday’s trading session. Nucor Corp, another steel play, fell about 1%. The price of steel the commodity had rallied 5% since President Trump’s previous tariff announcement in March.
The agreement between the U.S. and China remains tentative. As US Commerce Secretary Wilbur Ross put it, it was a “40,000 feet” deal whose details are still being ironed out. Larry Kudlow, President Trump’s economic advisor, also did what he could to dampen the mood, telling CNBC that the tariffs remain a tool in the arsenal of trade talks. Clearly, traders chose to focus on Mnuchin’s optimism.
Featured image courtesy of Shutterstock.