Wall Street delivered its fourth straight week of gains as upbeat signals about a U.S. trade deal with China helped dispel the gloom shrouding financial markets in the last month of 2018.
The blue-chip Dow Jones Industrial Average climbed 2.96 percent this week to 24,706, bringing its year-to-date expansion to 5.9 percent, while the broader S&P 500 added 2.87 percent and the tech-heavy Nasdaq rose 2.66 percent.
The three indexes, which have all posted gains every week since Dec. 28, benefited from a Bloomberg report that China had proposed ramping up purchases of U.S. goods enough to wipe out a trade imbalance that President Trump has repeatedly griped about. The two countries have been in talks since Trump and Chinese President Xi Jinping agreed in December to three months of negotiations after Washington imposed tariffs on $250 billion of Chinese imports and threatened even more.
With economists and corporate executives alike warning that Trump’s trade policies are undermining global growth and investors skeptical that the world’s two biggest economies could resolve decades of frustration in 90 days, the Bloomberg report offered a significant morale boost.
China would attempt to eliminate its $323 billion trade imbalance with the U.S. by boosting American imports $1 trillion over six years, Bloomberg said, citing people it didn’t identify.
And despite the Treasury Department’s denials of reports that Secretary Steven Mnuchin favors easing tariffs on China, “optimism over US-China trade talks continues to buoy market sentiment,” UBS’s wealth management office said in a report on Friday. Mnuchin suggested the administration roll back tariffs on $200 billion of Chinese goods to buoy negotiations, according to unidentified sources cited by the Wall Street Journal.
Market confidence may be displaced, however, said David Woo, a strategist with Bank of America. While Trump has an increased incentive for striking a deal with Beijing given his simultaneous standoff with congressional Democrats, “it takes two to tango,” Woo said.
Trump’s refusal in December to sign any government funding bill that didn’t include $5.7 billion for a barrier along the southern U.S. border led to a partial shutdown that has lasted just short of a month. Democrats, who regained a majority in the House of Representatives after November elections, have refused to spend that much.
Instead, the party has focused on the possibility that findings from an investigation by special counsel Robert Mueller into whether Trump’s campaign colluded with Russia to defeat rival Hillary Clinton in 2016 would weaken the president.
Though markets have taken Trump’s recent upbeat remarks about China at face value, the risk is that his “loss of full control of Congress may be viewed by Beijing as justifying a less conciliatory stance,” Woo explained. “With the shutdown in Washington and growing expectations that the Mueller report will be out soon, Beijing may decide that it is not in a hurry to close a deal.”
