The trade truce between the U.S. and China might only been a temporary fix, but it certainly did the trick for Wall Street.
The Dow Jones Industrial Average soared by more than 440 points at one point Monday and closed up 287.97 points, or 1.1 percent, to 25,826.43, while the S&P 500 also ended the day 1.1 percent higher to 2,790.37.
Investors were buoyed by a 90-day waiting period that U.S. President Trump and China’s President Xi Jinping agreed to on Saturday. The waiting period prompted the U.S. to shelve plans that would have boosted tariffs on roughly $200 billion worth of Chinese imports to 25 percent from 10 percent on Jan. 1.
The agreement also meant that Trump’s threat to slap levies on another $267 billion has been put on ice. Such a move would have most likely dragged the fashion sector into the fray. So far, the industry has avoided any big hits in the trade war, with the notable exception of handbag-makers.
According to Ike Boruchow, a retail analyst at Wells Fargo, the retailers that were set to be hit the hardest by the tariff increases could breathe a temporary sigh of relief — and enjoy some stock gains. They included Fossil Group Inc., which closed up 7 percent to $20.69; Skechers USA Inc., 4.9 percent to $28.31, and Steve Madden Ltd., 2.3 percent to $32.98.
“Skechers had become the proverbial ‘poster child’ for tariff risk given that they source over 90 percent of goods from China, so we believe that this stock could have one of the most meaningful positive reactions to the G-20 news,” he said.
Among the other retailers and fashion companies trading higher were G-III Apparel Group, up 9 percent to $43.69; PVH Corp., 3.3 percent to $114.25; Tiffany & Co., 4 percent to $94.65; Nike Inc., 3.8 percent to $77.94, and Walmart Inc., 1.1 percent at $98.75.
The news from the weekend might not boost the markets for too long as analysts zeroed in on the fact that 90 days is an extremely tight time for the negotiations, particularly for “structural changes” on important issues such as forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.
“This is all constructive news for markets, [but] the overarching concerns in the U.S.-China relationship remain, and thus should imply caution for markets past the short-term. The ‘structural’ issues are not ones that we believe can be easily tackled in a 90-day period,” said Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities.
“We still cannot rule out tariff increases and contentious negotiations going forward,” Tihanyi said.
If a deal cannot be made, the Trump administration warned tariffs would rise to 25 percent at the end of the 90-day period. It would also mean that the prospect of levies on a further $267 billion would be more likely. If that happens, the total amount of tariffs would surpass the value of all Chinese imports the U.S. accepted last year.
Even though the truce was only a temporary one, Trump took to his beloved Twitter to hail the meeting a great success, telling his 56.1 million followers that “very good things will happen.”
“My meeting in Argentina with President Xi of China was an extraordinary one. Relations with China have taken a big leap forward. Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field,” he tweeted on Monday.
Whatever the outcome might be, for now the pause gives companies more time to prepare in case higher tariffs are implemented next year. In particular, Nomura’s Alexander said companies will continue to front load imports from China during the 90-day period.
“Due to the recent uncertainty and the new deadline on the tariff hike, we believe export front-loading related to the $200 billion list may extend to January-February 2019,” said Lewis Alexander, chief U.S. economist at Nomura. “Based on our estimates, export frontloading may boost the year-on-year export growth by 1.8 percentage points in the fourth quarter 2018 and 2 percentage points in January-February 2019.”