Why a Partial Trade Deal Might Not Help the Market Long-Term

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Stocks are up big this morning in anticipation of today’s U.S.-China trade war meeting. Despite coming in Q4, it’s arguably the most important day of the year for investors – potentially more critical than the August rate cut that sent equities spinning.

As of midday, the market is surging. The Dow, S&P, and Nasdaq Composite have posted gains of 1.40%, 1.50%, and 1.70%, respectively.

And it’s mostly because of the President’s a.m. guidance on how things are going.

“Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days,” wrote President Trump on Twitter.

“I will be meeting with the Vice Premier today. All would like to see something significant happen!”

Saying exactly what he should to send stocks higher, Trump continued.

“One of the great things about the China Deal is the fact that, for various reasons, we do not have to go through the very long and politically complex Congressional Approval Process,” he tweeted, 25 minutes after his first comments of the morning.

“When the deal is fully negotiated, I sign it myself on behalf of our Country. Fast and Clean!”

Though the signing of a trade deal may be “fast and clean,” the events leading up to it (if it happens) have been anything but. Conflicting headlines sent investors every which way over the last 48 hours, wounding bulls and bears alike with huge swings in stock values.

Trump’s meeting with Chinese Vice Premier Liu He – scheduled for 2:45 p.m. EST this afternoon – was added to the itinerary just yesterday after initial talks went well. That’s got investors feeling optimistic for the first time in weeks.

To some analysts, however, there’s still plenty to be worried about.

“It’s critical to remember that all existing tariffs are expected to remain in place,” said Alec Young, managing director of global markets research for FTSE Russell.

“Until we get a deal that ends existing tariffs, 2020 earnings visibility will remain murky, especially in light of the ongoing weakness in the global growth outlook.”

He continued, adding that, “while this is good news in that things won’t be getting any worse, they’re not getting much better either. It’s only because expectations are extremely low that stocks are reacting so positively to this news.”

Young is spot-on with his commentary – a partial trade deal today does not mean that the trade war is over. Not even close.

All it really does is prevent the October 15th tariffs from hitting China, while both sides of the talks exchange tokens of goodwill – a “currency pact” and agricultural purchase agreement.

So, as the results of the negotiations come out later today, keep in mind that a “complete” trade deal is highly unlikely. The market will probably over-buy the news anyway, but that doesn’t mean everyone has to get in on the feeding frenzy.

Corporate earnings are almost here, and if the numbers don’t look good, the market’s temporary enthusiasm could collapse in a hurry.

The end result if that happens?

More frustration for investors, as uncertainty reigns supreme once again.

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