Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Wall Street Week Ahead: Tariff deadline keeps focus on trade as 2019 draws to close

Published 12/06/2019, 10:20 PM
Updated 12/06/2019, 10:20 PM
Wall Street Week Ahead: Tariff deadline keeps focus on trade as 2019 draws to close

Wall Street Week Ahead: Tariff deadline keeps focus on trade as 2019 draws to close

By Lewis Krauskopf

NEW YORK (Reuters) - The stock market looks set to end 2019 the way it began the year -- highly sensitive to headlines from President Donald Trump's global trade war.

Stocks pulled back from record highs to start December, undermined by comments from Trump and others in his administration suggesting any deal to resolve the trade dispute between the United States and China would not come soon. But the market rebounded at the end of the week on Friday's strong U.S. jobs and a change in tone from Trump.

Wall Street could see more volatility ahead of Dec. 15, when the next tranche of U.S. tariffs on Chinese imports is set to take effect.

At the start of the week, investors said equity prices were factoring in that those tariffs would be delayed if not canceled as Beijing and Washington work on a "phase one" trade deal. But subsequent tough talk from Trump officials has shaken those expectations somewhat.

"Until we get some finality on this, the day-to-day is going to move on headlines that suggest progress or lack thereof,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.

While the dispute between the world's two largest economies commands the spotlight, other trade issues also have drawn investor attention. They include a recent delay in ratification of the North American Trade pact, potential U.S. tariffs on imported autos and Trump's issuing surprise levies on steel imports from Brazil and Argentina.

Optimism over a U.S.-China truce has helped push the major Wall Street indexes to all-times highs recently, with the benchmark S&P 500 (SPX) logging a gain of more than 20% so far in 2019. But as the latest swings show, lack of a resolution to a trade dispute that has lasted nearly two years continues to weigh on the market.

“The problem is the uncertainty that the trade war process has on business decisions," said Art Hogan, chief market strategist at National Securities in New York. "Without some sort of short-term truce, company spending gets frozen and that’s where it affects the economy and the market."

(GRAPHIC: U.S.-China trade war timeline - https://graphics.reuters.com/USA-STOCKS/0100B33L2BV/china-trade-timeline.png )

The tariffs on $156 billion in Chinese imports that could take effect Dec. 15 are largely on consumer goods, including cellphones, laptop and desktop computers, toys and clothing.

UBS economists estimate those tariffs would drag on U.S. gross domestic product by either 0.1% or 0.2% in each of the four quarters next year. UBS projects overall GDP growth to average 1.1% in 2020, with tariffs generally weighing heavily in the first half of the year.

Aside from the fallout from the tariffs themselves, "the next read from them going into effect is that trade discussions are not going well," said Walter Todd, chief investment officer with Greenwood Capital in South Carolina.

Political tensions over U.S. support for protesters in Hong Kong and over Beijing's treatment of its Uighur Muslim minority have also raised concerns about the prospects for an initial trade deal.

“Without a phase one plan on getting something signed early in the new year, I think the market is susceptible for a pullback," said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC.

The focus will remain on trade into next week, even as the Federal Reserve holds its last meeting of 2019, with the U.S. central bank expected to keep interest rates steady after three cuts earlier in the year.

"The Fed chairman pretty much outlined that the bar is very high to raise rates," SunTrust's Lerner said.

However, he added, if some of the tariffs result in a sharp slowdown, "the Fed would have to act eventually" by cutting rates.

Investors will also be looking for signs of strength in the holiday shopping season, given that consumer spending is seen as a key pillar holding up overall economic growth.

There is a strong incentive to push off the tariffs "as long as people are at the negotiating table," said Carol Schleif, deputy chief investment officer at Abbot Downing in Minneapolis.

"President Trump definitely doesn’t want a downbeat consumer going into the election cycle,” she said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.