The Dow Jones zoomed as much as 250 points higher on Thursday as the United States and China appeared to agree to roll back tariffs.
While the stock market has reveled in this news, concerns remain about whether China will be prepared to offer any further concessions, raising doubts that this is truly the end of trade war troubles for the Dow.
While all three of the major US stock market indices rallied, the Dow Jones was the top performer. The bellwether index raced 203.71 points or 0.74% higher to 27,696.27. The DJIA had spiked as high as 27,774.67 earlier in the session.
The Nasdaq and S&P 500 also notched new all-time highs, rising 0.37% and 0.34%, respectively.
Confirming the risk-on tone, crude oil rallied more than 1.2%, while the price of gold was rocked by a massive surge in US Treasury yields. The sell-off in bonds saw the 10-year US Treasury yield hit the highest level since August.
Adding to the bullish tone for the economy, some positive jobs data contributed to the upward pressure on the Dow. The strong economy is important for markets because the consensus is that the Federal Reserve is likely to be more hesitant to cut interest rates from this point onward. Fed funds futures predict just a 6% probability of a rate cut at the FOMC’s December 11th meeting.
If there was any doubt that President Trump was extremely anxious to see the stock market performing better ahead of the 2020 election, his daily acknowledgments of the record highs on Twitter are proof – alongside those welcome tariff rollbacks.
Unfortunately for Dow bulls, things might not be quite as clear-cut as they appear. Raoul Leering, head of international trade analysis at ING, is concerned that China might not be so easy to deal with after the tariffs are removed.
While this is a positive development, the scaling back of tariff hikes could still turn out to be a deal breaker. If the US considers the mini deal as no more than a limited first step towards a phase two deal which would resolve the more difficult issues, it will want to keep the pressure on.
Without sufficient tariffs in place, China’s willingness to cooperate in follow-up negotiations on tough issues like reducing Chinese state subsidies, diminishing ‘forced’ technology transfers and scaling down its ambitions to conquer global tech markets, could be in short supply, according to the hardliners on Capitol Hill and in Congress.
This would all make Trump’s efforts to get a comprehensive deal passed much more difficult and raise the risks of Dow-denting tariffs being re-implemented.
It was an extremely bright day in the Dow 30, as the trade news helped some of the index’s biggest names mount impressive rallies. Apple and Caterpillar both jumped around 1.2%, while heavyweight Boeing propped things up with a similar rally.
The bounce in US Treasury yields was great news for major banking stocks like Goldman Sachs and JPMorgan Chase. The former headlined the Dow Jones with an impressive 2.5% rally.
Chevron and Exxon Mobil were strong, in line with the rally in crude oil.
Defensive play Coca-Cola lagged the index with a 0.84% loss, while Pfizer stock was the worst performer in the DJIA with a 0.85% decline.