Stocks Consolidate Recent Gains Ahead Of Trump-Xi Meeting
Stocks pulled back yesterday after a bit of profit taking and consolidation, which comes on the heels of three up weeks in a row.
Traders are anxious to hear how President Trump and President Xi's meeting goes at the G20 summit later this week. But it sounds like the meeting will take place on Saturday, so the market won't get a chance to react until Monday (or Sunday if you count the futures market).
The minimum expectations are for both leaders to at least agree to more negotiations on their way to a trade deal, with no further tariffs added.
Of course, everybody would love to see an actual trade agreement with a roadmap for when current tariffs will be lifted. That might be a tall order, but it's definitely possible.
Both countries want a trade deal. Just has to be the right deal for both parties involved.
Any positive developments will likely be cheered in a big way next week. And a full-fledged deal could send stocks soaring.
If the meeting breaks down, the market's will likely pull back. And the level of acrimony will dictate how much.
So let's hope the meeting can deliver what the market is hoping for, and even expecting, which is at least some positive development.
But let me address the downside for a moment – those predicting doom and gloom if there's a stalemate and more tariffs are levied, are overstating.
The numbers show that the first round of tariffs on $200 billion of Chinese goods, and the $60 billion of U.S. goods, 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 it once threatened. And that would likely shave more than one full percentage point off of China's GDP. But with our GDP expected to be around 3%, we're starting from a great place. And it would take a lot more than a half percentage point reduction to cause a recession.
And let's not forget, the Fed has already signaled they would step in if the economy slowed due to trade tensions or anything else.
True, if the U.S. and China can't eventually reach an agreement, it will definitely hurt growth in both countries. And that will weigh on stocks. But don't listen to the doomsayers who have been predicting the end of the world for much of this bull market. They've been wrong for years and are wrong now.
But again, the market is expecting something positive to come out of the meeting in Osaka, Japan this weekend.
And if so, the markets are expected to break out to new highs, and trigger and extended bull run.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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