Wall Street Hits Record Highs After Reports U.S. ‘Very Close’ To China Trade Deal As Deadline Looms

Topline: The stock market rallied to new all-time highs on Thursday after numerous reports, and a tweet from President Donald Trump, pointed to a possible phase one trade deal with China—even as the crucial December 15 tariff deadline looms nearer.

  • Both the S&P 500 and Dow Jones Industrial Average surged on the news, each rising over 1% in morning trading, with the former hitting a new record high before both indexes pared back gains somewhat. 
  • Trump tweeted this morning that the U.S. was “getting VERY close to a BIG DEAL with China” and that both sides want to work out an agreement. 
  • A report from the Wall Street Journal followed soon after, detailing how U.S. negotiators have recently offered to slash existing tariffs, which cover roughly $360 billion of Chinese goods, by 50%.
  • The U.S. is also willing to cancel the tariffs planned to take effect on another $156 billion of Chinese goods on December 15, the report said, citing several unnamed sources briefed on the matter.
  • In return, the U.S. is pushing for China to commit to additional purchases of agricultural and other products, better protection of U.S. intellectual property rights and allowing greater access to China’s financial services sector, according to the Wall Street Journal.
  • If the deal falls through, the U.S. can reportedly  “snap back” tariff rates and return them to their original levels.

Crucial quotes: Trump’s move to rollback some tariffs is important for two reasons, says Nicholas Sargen, economic consultant at Fort Washington Investment Advisors. “It shows a willingness to compromise and will lessen the risk of global economic weakness.”

“In any type of negotiation, close doesn’t mean done… The market is optimistic in that regard, but we’re still waiting for final confirmation,” says Mark Freeman, chief investment officer at Socorro Asset Management. “How things go from a market standpoint is dependent on what gets done—or what doesn’t get done, by Sunday.” He points out that while the market is positioned for a truce or phase one deal, the clear risk to stocks would be for negotiations to completely fall apart.

What to watch for: “Trade teams from both sides are maintaining close communications,” A spokesman at China’s Commerce Ministry said at a news briefing Thursday.

Key background: With both sides working around the clock to negotiate a deal ahead of the looming China tariff deadline on December 15, Wall Street investors cheered the good news on Thursday morning. Reports from both Bloomberg and the Wall Street Journal earlier this week had seemed to suggest that the U.S. would indeed delay additional tariffs on December 15th. Investors have anxiously been waiting to see whether or not the president imposes additional tariffs on Chinese goods, starting on December 15. If no deal is struck before the deadline then tensions between the two countries could escalate and threaten the stock market’s year-end run. 

The recent trade news comes after the Federal Reserve’s Wednesday decision to hold interest rates steady through at least 2020, as Fed officials take a wait and see approach going into next year. Wall Street has continued to rally on solid economic data with Friday’s blockbuster November jobs report showing the labor market is still a bright spot for the U.S. economy. The positive news could help the stock market finish strong in 2019 despite ongoing uncertainty over the looming China tariff deadline. Solid job growth and steady consumer spending have both helped dampen recession fears for now.

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