On Wednesday, U.S. Trade Representative Robert Lighthizer said that the Trump administration had dropped the possibility of dramatically increasing tariffs on China. While the move was met with little reaction from the Dow Jones, analysts expect the U.S. stock market to regain its momentum in the weeks to come.
Trump Adviser: Tariff Hikes are Out of the Picture
Since February 22, for well over a week, the Dow Jones has remained relatively stable near 26,000 points, retracing slightly following the breach of 26,200 points on February 25.
As U.S. President Donald Trump pushes the talks with China forward to achieve a comprehensive trade deal with the threat of additional sanctions having been eliminated, the Dow Jones is expected to recover until the quarter’s end.
U.S. Economy Grows With Tariffs Removed, Fueling Optimism in Dow Jones
Earlier this week, Lighthizer reportedly stated after a House Ways and Means Committee meeting that the U.S. and China were able to come to a consensus on ways to integrate and enforce the trade deal if a comprehensive agreement is to be established in the near-term.
Due to strong fundamentals and the optimistic forecast on the progress of the trade deal, the U.S. economy grew by 2.6 percent in the last quarter of 2018, surpassing the expectations of Wall Street analysts.
— jeroen blokland (@jsblokland) February 28, 2019
Most key sectors including finance and technology struggled in the fourth quarter, forced to revise earnings to the downside.
Conglomerates like Apple and Tesla attributed their weak earnings in the Asian market to the uncertainties in the trade discussions at the time.
“Our sales of Model S and Model X in China have been negatively impacted by certain tariffs on automobiles manufactured in the U.S,” Tesla said in a filing with the U.S. Securities and Exchange Commission (SEC).
Tesla, for instance, was priced out of the Chinese market as the tariffs pressured the company to sell its Model 3 at $99,400, a vehicle that sells for as low as $35,000 in the United States.
“When Tesla first opened orders for Model 3 in China in November, only the Long Range all-wheel-drive and Performance versions were available and they respectively started at 580,000 RMB (~$83,500 USD) and 690,000 RMB ($99,400 USD),” Electrek reported on December 24, 2018.
But, the strong job market of the U.S., tax cuts on the middle class, and an increase in household income gains showed in record-high household balance sheets pushed consumer spending to grow, allowing the U.S. economy to expand by 2.6 percent.
George Whittier, president of Morey Corp, told the Wall Street Journal that while growth of businesses is rising steadily, it could increase at a more rapid rate if geopolitical risks are eliminated.
“We’re seeing some nice, steady growth but we believe it actually should be a little bit stronger than what it is. The overall tariff cost is just steadily building and building, and so it’s just causing people to rethink where their buying strategies are, and it’s causing some uncertainty and some slowness.”
With robust fundamental factors and the patience of the Federal Reserve on its rate in place, the missing puzzle piece that could fuel the momentum of the U.S. stock market and the Dow Jones is a trade deal with China, which experts foresee in the near-term.
U.S. & China Near Final Phase of Trade Negotiations
According to Treasury Secretary Steven Mnuchin, the U.S. and China are currently working on establishing a 150-page document to pen a full trade agreement.
White House National Economic Council Director Larry Kudlow firmly stated that the U.S. is headed towards a historic deal, which could be signed by Donald Trump and Chinese President Xi Jinping in the weeks to come.
“The progress has been terrific. We have to hear from President Xi and the Politburo of course, but I think we’re headed toward a remarkable historic deal,” Kudlow said.