Stocks Turn Positive After Trump Keeps Phase One China Trade Deal Intact

TOPLINE

The market fell sharply for most of Friday as investors braced for President Trump’s announcement regarding China, but despite new sanctions and penalties, stocks turned positive after the phase one trade deal was kept intact.

Trump will make an announcement regarding U.S.-China relations on Friday.

Doug Mills-Pool/Getty Images

KEY FACTS

The Dow Jones Industrial Average was flat on Friday, while the S&P 500 was up 0.5% and the tech-heavy Nasdaq gained 1.3%.

Stocks moved lower for much of the day, with the Dow falling by around 250 points, as Wall Street nervously awaited Trump’s news conference on U.S.-China relations.

The president announced Friday that he would impose new sanctions and visa restrictions on Chinese officials who played a role in “smothering” Hong Kong’s freedom; He also directed his administration to revoke the city’s preferential treatment.

The United States will also terminate its relationship with the World Health Organization, Trump said, adding that China has “total control” over the WHO.

The moves came in response to Beijing’s new national security bill for Hong Kong, which reduces the city’s autonomy from mainland China.

The market rebounded sharply following Trump’s announcement, with the S&P 500 turning positive, after it became clear that the phase one trade deal with China would remain intact.

U.S. consumer spending plunged by a record 13.6% in April, more than the 12.9% expected, according to new data Friday. The U.S. savings rate, on the other hand, surged 33% to an all-time high as more Americans stockpiled cash and cut back on spending amid the pandemic.

Crucial quote

JPMorgan

JPM
strategist Marko Kolanovic, who correctly predicted the market’s recovery in late March, warned investors to be more cautious about stocks because of a possible economic clash with China. “A complete breakdown of supply chains and international trade, primarily between the two largest economies (U.S. and China), would justify equities trading drastically lower,” Kolanovic said in a recent note.

What to watch for

Rising U.S.-China tensions could threaten the market’s recent rally. Trade fears have escalated as both countries continue to blame each other for spreading the coronavirus pandemic. Trump has criticized the Chinese government’s response to the outbreak and has repeatedly touted a controversial theory that the virus originated in a Wuhan lab. U.S. lawmakers have also increasingly pushed back on China increasing its grip over Hong Kong. Earlier on Friday, the White House’s top economic advisor, Larry Kudlow, told Fox News that the U.S. government is “furious” with China’s behavior in recent weeks. On Wednesday, Secretary of State Mike Pompeo confirmed to Congress that Hong Kong is no longer “politically autonomous” from China. The United States wants an “open and constructive relationship” with China, Trump said on Friday, but added that because Beijing has broken its promises, the U.S. will defend its national interests.

TANGENT

Shares of Twitter continued to fall on Friday, after President Trump signed an executive order targeting social media platforms late on Thursday. The move comes after Twitter for the first time fact-checked some of Trump’s tweets, prompting outrage from the president.

Key background

Trump first announced the news conference regarding China late on Thursday, causing stocks to tumble—the Dow gave up 300 points—and turn negative in the final hour of trading. While the market was down for most of Friday, the major averages sharply cut their losses right before the press conference, following a report from Bloomberg which said that Trump would not scrap the phase one trade deal. The market is still up for the week, thanks to increasing optimism on Wall Street over a successful reopening of the economy and a potential coronavirus vaccine. Stocks broke back above two crucial milestones on Wednesday that show the market’s recovery from the coronavirus downturn in late March. The Dow closed above 25,000 and the S&P closed above 3,000, both for the first time since March.