“There’s a lack of selling in the market,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Because we have optimism around trade … a better-than-expected earnings season and we’re heading into what appears to be a strong holiday shopping season, there’s a lot to like right now.”
Trump told the Economic Club of New York that China wants to make a trade deal, but offered little details on how negotiations were progressing. He also blasted previous U.S. leaders for letting China “cheat” on trade.
An improving tone around U.S.-China trade relations has contributed to the market’s record run. The Dow and S&P 500 are both up more than 3% over the past month while the Nasdaq has risen 5.3% in that time.
“What makes prospects for the latest putative pact look brighter this time around is the narrower scope of the negotiations,” Eleanor Olcott, China policy analyst at TS Lombard, said in a note. “By phasing the talks and leaving thornier issues for later, a temporary plaster can be put on the increasingly fractured relationship.”
Last month, Trump said China and the U.S. agreed to a phase one trade deal to be signed later in November, raising expectations of a deal being made. However, he also said Friday he had not agreed to scrap tariffs on Chinese goods after reports earlier last week said both sides had agreed to cancel existing tariffs in tranches.
But Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, thinks a lot of the positive news around a phase one deal have been baked in.
“The stocks most exposed to the China trade war are back to prior peaks – and pre-trade war/1Q18 levels – in terms of both performance and valuation,” Calvasina said in a note. “With [earnings] reporting season winding down, a positive outcome on a China trade deal baked in, 2020 forecasts still in need of downward adjustment, and companies making it clear that 2020 guidance isn’t going to come anytime soon, positive catalysts between now and year-end are difficult to imagine.”