A resolution on trade between the world’s two biggest economies could be a big catalyst for a relief rally in the stock market. BlackRock Chairman and CEO Larry Fink said Wednesday on CNBC’s “Squawk Box” that there would be “a surge in investment sentiment” if both sides call off tariffs on each other’s goods.
Washington and Beijing reached a 90-day truce last month to halt any new levies as they seek to work up a long-term deal through negotiations. There has been mixed feedback on the trade talks — Sen. Chuck Grassley, R-Iowa, said recently that U.S. Trade Representative Robert Lighthizer saw no progress on key issues, while President Donald Trump tweeted about “big progress” with China. In the latest development, China’s vice premier, Liu He, has accepted an invitation to Washington this month for trade talks.
Fears of a full-on trade war with China have been on top of investors’ minds for months. The volatile stock market suffered its worst year since the financial crisis in 2018, with the S&P 500 tanking a whopping 14 percent in the fourth quarter. U.S. companies have also sounded alarms on the trade war’s impact on their business.
To be sure, this is lining up to be a risky binary trade. These names (and the whole market) could be hit hard if there is not a trade deal.
If the negotiations go nowhere and a 25 percent tariff is imposed on all Chinese goods, HSBC estimated 4.5 percentage points would be subtracted from 2019 earnings growth, more than halving the growth rate from current levels, Laidler said in the note.