US stocks moved only slightly on Tuesday, amid trade news on two different fronts.
First, there was a report that American and Chinese negotiators are working to delay the December 15 import tariffs that the United States was set to impose on Chinese imports. This next round of tariffs will hit consumer goods.
Then there was news that Democratic lawmakers will support a new trade deal with Mexico and Canada, which will replace North American Free Trade agreement.
The headline in The Wall Street Journal about US-China negotiations helped stock futures pare losses and inch into positive territory ahead of the opening bell in New York. But come the market open, stocks slipped back into the red.
The Dow was last flat, while the S&P 500 had recovered into modestly positive territory. The Nasdaq Composite was up 0.2%.
Over the course of the year, the US stock market has really only card about one thing: trade.
Even though investors have grown more cynical when it comes to each new piece of information, such as confirmations of talks progressing or “going well”, stocks moved in lockstep with rising and falling hopes for a trade deal.
That is in part because of how binary the situation is: a trade deal would remove uncertainty for investors and give businesses the confidence to invest in their future. Global trade would rebound and the manufacturing sector would recover. Investors sitting on the sidelines would have no reason not to get back into the market.
A full-blown trade war, on the other hand, would lead to more pain through tariffs and likely a prolonged slowdown of the global economy.
In the United States, consumption contributes some two-thirds of GDP growth. So far it has held up in the face of the trade conflict. But if tariffs keep rising, companies could begin to pass the costs down to consumers, whose sentiment in turn could sour.
“The Trump economics team is counting on the consumer to carry the economy forward as business investment still is being held back by an uncertain outlook for trade talks,” wrote Chris Rupkey, chief financial economist at MUFG, in a recent not to clients.