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Dow Slithers Higher Despite Fears Over ‘Implausible’ Trade Deal

Last Updated September 23, 2020 1:24 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:24 PM
  • The Dow rose on Monday, even though its largest stock suffered big losses.
  • Trump’s trade deal survived the weekend, but severe concerns remain.
  • The details of the deal are still unclear, and analysts aren’t sure Beijing will live up to its end of the bargain.

The Dow Jones advanced cautiously on Monday, as investors watched Sunday’s trade war deadline come and go without the imposition of any new tariffs.

Wall Street continues to cheer the phase one trade deal, but some analysts are growing increasingly concerned that the two countries haven’t articulated a clear picture of the agreement’s terms.

Dow Enjoys Delayed Trade Deal Rally

After a half-hearted response to last Friday’s trade deal announcement, the US stock market finally rallied on Monday.

The Dow Jones Industrial Average bounced 121.03 points or 0.43%, launching the index to 28,256.41.

dow jones industrial average chart
The Dow rallied on trade deal optimism, albeit one session late. | Source: Yahoo Finance 

The Dow would have rallied even higher, had it not been for startling weakness in its heaviest stock, Boeing. Facing headlines warning that the US aerospace giant could halt production of the 737 MAX , BA shares fell more than 3.8%.

The S&P 500 was encumbered by no such restraints, and it soared 23.43 points or 0.74% to 3,192.23.

The Nasdaq made a similar move, rising 63.59 points or 0.73% to 8,798.82.

Wall Street Remains Nervous About ‘Implausible’ Trade Deal Terms

US stocks are trending up, but investors remain uneasy about a phase one trade deal that the White House almost seemed to conjure out of the aether.

Following its stunning announcement last week, one economist questioned whether the so-called “agreement” would even survive the weekend. Well, it did, which explains the Dow’s cautious advance this morning. But that doesn’t necessarily mean that downside risks from the trade war have vanished.

dow jones industrial average
The Dow is rising, but investors still aren’t completely enthusiastic about last week’s trade deal announcement. | Source: Johannes EISELE / AFP

Although one of China’s core concessions is an agreement to import more US farm goods, Beijing has been cagey about the details. Trump suggested Friday that China would purchase around $50 billion  of US agricultural products “pretty soon,” while US Trade Representative Robert Lighthizer said the trade deal included $32 billion worth of farm imports over two years.

Neither of those targets strikes analysts as particularly feasible , especially since China has declined to confirm them.

“That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference,” Ting Lu, chief China economist at Nomura, wrote in a note, according to CNBC.

The US has been more forthcoming  in what it claims the trade deal includes. However, according to the South China Morning Post, Chinese government advisers worry that Beijing would face a “huge challenge”  to meet those terms – assuming it actually plans to fulfill them.

“For China, committing to and carrying out the phase one agreement is a huge challenge,” Shi Yinhong, a Chinese government adviser and international relations professor at Renmin University, told SCMP. “China will need to buy something like US$300 billion worth of US products in the next two years and lots more US agricultural goods. Does China need that amount of US soybeans?”

The prospects for the “phase two” agreement don’t appear particularly bright. For now, though, the trade deal provides both China and US businesses with tariff relief. For Dow Jones bulls, that’s something worth cheering about.