Stocks Rebound, But Trade Worries Persist

Stocks bounced strongly yesterday with all of the major indexes gaining nearly 1% or more.

The markets are still trying to digest the stalled U.S.-China trade talks.

While it was disappointing to hear that no deal was forthcoming last week, both sides have agreed to continue negotiations, even though no timetable has been set for when they are to resume.

President Trump, however, did say he will be meeting with President Xi after the G20 meeting in Japan in late June. But that's still a month and a half away.

In the meantime, the U.S. has gone ahead with the planned hike in tariffs on $200 billion of Chinese goods. China, in response, has readied new tariffs on $60 billion of U.S. goods, which will go into effect by the end of June. And the WH is preparing for even more tariffs on an additional $325 billion of Chinese goods, which, if approved, will also go into effect by the end of June.

Ironically, these latest tariffs are expected to take effect right at about the time both leaders are expected to meet.

But as I mentioned before, the markets have taken it in stride since it's estimated that the first round of tariffs would only shave two tenths to three tenths of a percent off of our GDP. Although, it would likely knock a half percent off of China's. That number climbs to four tenths to a half percent off of our GDP if the U.S. levies tariffs on the additional $325 billion. And that would likely shave more than one full percentage point off of China's GDP.

Moreover, it's estimated that only 11% of earnings for companies in the S&P come from China. So the downside on those stocks should be limited as well.

We're bound to see more volatility in the coming weeks as this issue gets worked out.

But given the strength of our economy and record jobs market, we look to be in fine shape.

Earlier this year, I said I thought the S&P would be up more than 30% this year. And I'm just as confident saying that now as I did then.

In fact, we're almost halfway there with the market up nearly 13% YTD, even after the recent pull back. So we've got another 7½ months to see the rest of it.

These are historic times for our economy and for the market.

So make sure you're taking full advantage of it.

See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research

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