Stocks Rose As Trade Tensions Ease: Risk May Increase Into Year End

 | Sep 23, 2018 09:14AM ET

Summary

• The stock market rose last week, with the S&P 500 (SPX) up 25 points to 2930, an increase of 0.9%.
• Trump implemented tariffs on $200 billion in imports, but China responded with tariffs on only $60 billion of US imports, which help lift stocks.
• Our projection this week is for the SPX to trade in a choppy range, with downside risks increasing.

After the markets closed on Monday, President Trump announced that the US would impose a 10% tariff on the import of $200 billion worth of Chinese goods. Trump also said the rate of the tariff would increase to 25% on January 1.

While the Chinese government did respond, they did so by imposing 5-10% tariffs on only $60 billion in US imports. After the announcement, news reports emerged that China was considering lowering import tariffs on the majority of its trading partners.

While Premier Li Keqiang confirmed that tariff reductions were being planned, he did not provide additional details. In any case, this appears to be an attempt to simulate the slowing Chinese economy, while minimizing the benefits to the US.

Stocks surged on Tuesday, after the markets realized that the Chinese response would not be “tit-for-tat”, They surged again on the reports of a possible reduction in tariffs.

In addition to the S&P 500 finishing higher on the week, the NASDAQ finished flat and the Russell finished lower. Beyond the US, the Vanguard World Stock Index finished 1.8% higher, and the MSCI Emerging Markets Index (EEM) finished 3% higher.

The sentiment appears to be that the trade war may not be as bad as some had imagined.

On the macro side, while building permits and existing home sales came in low, the Philadelphia Fed Manufacturing Index outperformed. Yet in Europe, German Manufacturing PMI came in below expectations.