The Dow Added 326 Points Because the U.S. and China Are on Speaking Terms for Trade

Evie Liu After the Bell Markets ANF BBY BURL DG Abercrombie & Fitch Burlington Stores Best Buy Dollar General Retail/Wholesale Clothing Stores Specialty Retailing Retail Keith Lerner Steven Mnuchin Donald Trump Barry Bannister China Trump Asia Pacific Asia BRICS Countries China Greater China Emerging Market Countries Developing Economies Eastern Asia North America United States Trade/External Payments Economic News Political/General News International Relations Politics/International Relations Trade Barriers/Restrictions Equity Markets Commodity/Financial Market News Content Types Factiva Filters C&E Exclusion Filter ANF BBY BURL DG I/RTS I/SAP I/XFFX M/RTWS N/DJN N/GEN N/GENI N/IEN N/MKT N/PLT N/STK N/TRD N/WER R/ASI R/CH R/FE R/FEO R/NME R/US Barrons.com Barrons Blogs Wires Fortune 500 COMP DJIA Dow Jones Industrial Average Nasdaq Composite S&P 500 SPX CODES_REVIEWED After the Bell Companies Markets author Evie Liu author|Evie Liu topicid 8574 name Evie Liu extractedtext Evie Liu 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codetype RELAY code synd status modified statistic CODES_REVIEWED statistic|CODES_REVIEWED name CODES_REVIEWED value CODES_REVIEWED codetype STATISTIC code CODES_REVIEWED subject OAMK subject|OAMK description 04|Markets|Asia Mkts News source EXPANDER value OAMK codetype SUBJECT code oamk subject BARCOMP subject|BARCOMP ruleid BARCOMP codetype SUBJECT value BARCOMP canbedisplaysubject true name Companies title Companies status modified code BARCOMP subject BARMKTS subject|BARMKTS ruleid BARMKTS codetype SUBJECT value BARMKTS selectable true canbedisplaysubject true name Markets title Markets status modified code BARMKTS subject BARAFBELL subject|BARAFBELL ruleid BARAFBELL codetype SUBJECT value BARAFBELL canbedisplaybrand true name After the Bell title After the Bell status modified code BARAFBELL wordcount 872 wordcount|872 Illustration by Michael George Haddad The Dow Added 326 Points Because the U.S. and China Are on Speaking Terms for Trade The Dow Added 326 Points Because the U.S. and China Are on Speaking Terms for Trade Dow Jones Industrial Average Rose as the U.S. and China Will Talk Trade

All three major stock indexes closed with solid gains on Thursday after China said it wouldn’t immediately retaliate against the latest U.S. tariffs increases. China is also considering a meeting with American representatives in September.

The Dow Added 326 Points Because the U.S. and China Are on Speaking Terms for Trade

All three major stock indexes closed with solid gains on Thursday after China said it wouldn’t immediately retaliate against the latest U.S. tariffs increases. China is also considering a meeting with American representatives in September.

https://www.wsj.com/articles/china-u-s-remain-in-discussions-over-trade-talks-scheduled-for-september-11567065604 https://www.barrons.com/articles/discount-stores-are-winners-as-retailers-report-earnings-51567103169?mod=hp_LEAD_1 https://www.wsj.com/articles/china-u-s-remain-in-discussions-over-trade-talks-scheduled-for-september-11567065604 https://asset.barrons.com/dj-mg/dice/barrons-staffpicks-2d590600-c862-4394-b9d3-66b48c376d60/inset.json https://www.barrons.com/articles/trump-unveils-even-more-tariffs-as-the-trade-war-grows-hotter-51566596230?mod=md_home_pan_mkt_news https://www.wsj.com/articles/u-s-prosecutors-probe-huawei-on-new-allegations-of-technology-theft-11567102622 https://www.wsj.com/articles/trump-administration-extends-license-enabling-huawei-to-work-with-u-s-customers-11566221688 mailto:evie.liu@barrons.com The Dow Added 326 Points Because the U.S. and China Are on Speaking Terms for Trade By Evie Liu Illustration by Michael George Haddad

Bounceback. All three major stock indexes closed with solid gains on Thursday after China said it wouldn’t immediately retaliate against the latest U.S. tariffs increases. China is also considering a meeting with American representatives in September. Dollar General stock (ticker: DG) and Burlington Stores stock (BURL) surged on surprisingly strong earnings results. On the flip side, Abercrombie & Fitch stock (ANF) and Best Buy stock (BBY) tumbled. In today’s After the Bell, we...

wonder when the trade representatives of China and the U.S. will meet; look at the latest developments in the U.S. investigation on China’s Huawei Technologies; and check on Wall Street’s divided views on equities’ future.

Signs of Relief

Stocks rose on Thursday as trade issues between the U.S. and China showed some new positive developments. The Dow Jones Industrial Average added 326.15 points, or 1.25%, to close at 26,362.25. The S&P 500 gained 36.64 points, or 1.27%, to finish at 2924.58, and the Nasdaq Composite rose 116.51 points, or 1.48%, to close at 7973.39.

China’s commerce ministry said on Thursday that it won’t retaliate against the latest tariff increase announced by Trump administration last week, and that it’s discussing the next round of face-to-face trade talks with the U.S. scheduled for September. Treasury Secretary Steven Mnuchin also said in a Wednesday interview that U.S. trade officials are expecting to meet Chinese negotiators in Washington, but didn’t say when.

https://asset.barrons.com/dj-mg/dice/barrons-staffpicks-2d590600-c862-4394-b9d3-66b48c376d60/inset.json

Tensions between the two nations peaked last Friday when China threatened retaliatory tariffs on $75 billion worth of U.S. imports. In response, President Donald Trump raised the rate of existing duties on Chinese products and asked American companies to stop doing business in the country. But Trump softened his tone later. On Monday he said that the two nations had made productive weekend phone conversations and that China was eager to strike a deal. The latest remarks from both countries is that further talks looked doable–encouraging news for the market.

Still, The Wall Street Journal reported that U.S. prosecutors are looking into additional instances of alleged technology theft to expand the criminal cases against Chinese telecom giant Huawei Technologies. Huawei was put on a blacklist by the Trump administration in May, which banned the company from doing business with U.S. firms on concerns of national security. The ban has since been delayed. If the new allegations were to be brought up, however, tensions between the two countries could escalate yet again.

As the stock market has been essentially rangebound throughout August, Wall Street is split on their views for equities’ future.

The S&P 500 has had 18 prior pullbacks of at least 5% since the bull market kicked off in March 2009. Still, stocks are up more than 400%–including dividends—from the 2009 bottom. “Corrections are always accompanied by bad news, but they are normal and the admission price to the stock market,” wrote Keith Lerner of SunTrust Investment Advisory in a Wednesday note. “While the near-term market picture is mixed, if the U.S. sidesteps a recession, as we anticipate, this should be a positive for stocks longer term.”

Barry Bannister of Stifel is more bearish. He turned to the 50-day moving average of the yield curve between 10-year and three-month Treasuries as a recession indicator, which hasn’t given a false signal over the past 50 years. An inversion of the smoothed curve typically led recessions by an average of 10 to 11 months.

Since the inversion happened on June 20 of this year, that means a recession might hit around May 2020, with the S&P 500 beginning to plunge in December 2019, wrote Bannister in a Thursday note. If that’s the case, history implies that the S&P 500 index would fall about 32% and earnings per share of the companies that are components of the index will drop 26%.

Even if the Fed cuts the target interest rate by another 25 basis points at the September meeting, it would be too late to avoid the recession, according to Bannister: “We have long viewed the Fed as being too tight, having begun the rate cycle in mid-2014 at the -3% low for the Shadow Fed Funds (and not the first rate increase of Dec-2015).” Amid the trend of de-globalization and higher debt, especially, the central bank’s dual mandate of price stability and full employment appears to be too archaic, wrote Bannister.

Write to Evie Liu at evie.liu@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.