Stocks are little changed as doubts emerge about the China-US trade agreement

U.S- China trade deal reach phase one | Peter Cardillo of Spartan Capital to ET Now
October 14, 2019
WSJ Dow Interview
October 14, 2019

Stocks are little changed as doubts emerge about the China-US trade agreement

Fred Imbert

Stocks were little changed on Monday as new worries around a U.S.-China trade agreement emerged despite Friday’s announcements.

The Dow Jones Industrial Average was up just 15 points, or around 0.1%. The S&P 500 and the Nasdaq Composite both hovered just below the flatline.

Monday’s moves came after a surge for stocks in the previous session. The S&P 500 and Nasdaq both gained more than 1%. The Dow, meanwhile, rallied more than 300 points, or 1.2%.

CNBC learned through a source that China wants to have additional trade talks before signing what President Donald Trump characterized Friday as a “very substantial phase one deal.” It is not clear if the additional talks will take place in Beijing or Washington, however. Bloomberg News first reported the news.

As part of phase one, China would buy between $40 billion and $50 billion in U.S. agricultural products. China also agreed to address intellectual-property concerns raised by the U.S. In return, the U.S. agreed to hold off on a tariff hike scheduled for this week.

“As many lingering questions remain, there is significant doubt this truce will hold through 2020,” said Jason Pride, director of investment strategy at Glenmede. “Likely, these issues will reappear in some form before the election, perhaps in the form of renewed tariff threats or actions targeting individual Chinese companies.”

Trump said the phase one deal was a success, but China’s characterization of the outcome was far more muted. Chinese state media said both sides made “substantial progress” but did not use the world “deal” when describing the outcome.

“Investors are having second thoughts about the trade deal,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “Even though there was a breakthrough in the talks, nothing was signed.”

Treasury Secretary Steven Mnuchin told CNBC’s “Squawk Box” on Monday that while both sides made “substantial progress” last week, the agreement is still “subject to documentation.” He also said a December tariff hike on Chinese products would go through if a deal is not reached by then.

The world’s two largest economies have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

Earnings season ahead

Investors also braced for the start of the earnings season, with a slew of major banks set to report Tuesday. Citigroup, Goldman Sachs, J.P. Morgan Chase and Wells Fargo are all scheduled to release their results from the previous quarter.

Analysts expected third-quarter earnings for the S&P 500 to have fallen 4.6% on a year-over-year basis, according to FactSet.