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Did Trump Trigger An End-Of-The-Year Rally?

By Bill PoulosMarket OverviewDec 05, 2018 03:20PM ET
Did Trump Trigger An End-Of-The-Year Rally?
By Bill Poulos   |  Dec 05, 2018 03:20PM ET
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America and China Finish this Year’s G20 with an Optimistic Look Towards the Future

It’s a Christmas Miracle. After intense talks between Trump and Xi at a Sunday night dinner, a ceasefire agreement was reached. For 90 days, the two countries will use this ceasefire to troubleshoot potential solutions to end current trade war. In the meantime, no new tariffs, retaliatory or otherwise, will be enacted.

This armistice benefits both countries, though China will benefit more from the 3 Month break as they were mere weeks away from a new set of tariffs. America was poised to impose those tariffs on $200 Billion in goods, raising their rates from 10-25% at the beginning of the year.

Trump referred to the meeting as “amazing” and “productive”, calling the US/China relationship “very special”. President Xi meanwhile stated that the two nations are stronger when they work together. Despite these positive sentiments, the question remains whether or not an agreement can be reached in the next 90 days. If not, the US has made it clear they plan to proceed with their original tariff proposal.

The Winner of this 90 Day Pause

Aside from a small group of bears who liquidated after the news of the 90 Day ceasefire, most everyone else stands to gain from this de-escalation to the trade war. Some of the industries that benefit most are:

Miners and mining equipment received a large boost Monday as aluminum and steel tariffs have been especially difficult for these industries.

U.S. soy farmers, have plenty of reason to celebrate as China states they are looking to purchase a bast amount of agricultural products. With China being the largest purchaser of American soy, the trade war was especially hard on them.

America’s industrial and energy divisions were also identified as potentially benefitting from increased buying power from China.

The Qualcomm-NXP deal, an agreement previously foiled by Chinese regulators back in July is back at the table for continued negotiations. While this is good news, Qualcomm (NASDAQ:QCOM) says they will have to completely rewrite the deal as many factors have changed since this past summer

Victims of opioid addiction and their families may find some relief in the news that Beijing will be designating fentanyl a controlled substance.

Investors Should Keep an Eye Open for an End-Of-Year Bump

This Autumn was a painful one to say the least, but things are starting to look up for the bulls.

"We have a deal. That’s wonderful news for global financial markets and signaling the start for a year-end rally in risky assets," said Bernd Berg, global macro strategist at Woodman Asset Management. “We are going to see a rally in emerging market and U.S equities, EM currencies and China-related assets like Australia. I expect the rally to last until year-end.”

While Berg may be correct in his predictions, some might say he’s getting a little bit ahead of himself with the line “we have a deal”. As of now, we have a temporary hold on new tariffs in the hopes of working towards a deal.

Continuing, major causes for concern are still a major factor as we move into 2019:

FANG Stocks Have an Uphill Battle Towards Recovery: The damage inflicted on the FANG stocks these past two months is not the kind of damage that can be repaired by an end of year rally. Facebook (NASDAQ:FB) user growth, iPhone sales, and Netflix (NASDAQ:NFLX) subscription numbers have proven that FANG no longer has the power it once did.

Everyone’s in Debt. Fears over brexit, the Chinese housing bubble, rising taxes in France and America’s corporate debt are just some of the world wise problems we are facing at the moment. And while the Fed backed off on their initially aggressive interest rate hikes for now, that doesn’t mean they won’t push forward in the future.

Can we really reach a permanent Trade Truce. It’s hard to tell whether China is serious or whether they’re just buying time. Xi might just be trying to stall till 2020 in the hopes that a new president will be more favorable to his demands.

Did Trump Trigger An End-Of-The-Year Rally?

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Did Trump Trigger An End-Of-The-Year Rally?

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