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WALL STREET - NEW YORK. The stock market looks set to end 2019 the way it began the year — highly sensitive to headlines from President Donald Trump’s global trade war.
Stocks pulled back from record highs to start December, undermined by comments from Trump and others in his administration suggesting any deal to resolve the trade dispute between the United States and China would not come soon. But the market rebounded at the end of the week on Friday’s strong U.S. jobs and a change in tone from Trump.
Wall Street could see more volatility ahead of Dec. 15, when the next tranche of U.S. tariffs on Chinese imports is set to take effect.
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At the start of the week, investors said equity prices were factoring in that those tariffs would be delayed if not canceled as Beijing and Washington work on a “phase one” trade deal. But subsequent tough talk from Trump officials has shaken those expectations somewhat.
“Until we get some finality on this, the day-to-day is going to move on headlines that suggest progress or lack thereof,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.
While the dispute between the world’s two largest economies commands the spotlight, other trade issues also have drawn investor attention. They include a recent delay in ratification of the North American Trade pact, potential U.S. tariffs on imported autos and Trump’s issuing surprise levies on steel imports from Brazil and Argentina.
Optimism over a U.S.-China truce has helped push the major Wall Street indexes to all-times highs recently, with the benchmark S&P 500 .SPX logging a gain of more than 20% so far in 2019. But as the latest swings show, lack of a resolution to a trade dispute that has lasted nearly two years continues to weigh on the market.
“The problem is the uncertainty that the trade war process has on business decisions,” said Art Hogan, chief market strategist at National Securities in New York. “Without some sort of short-term truce, company spending gets frozen and that’s where it affects the economy and the market.”
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The tariffs on $156 billion in Chinese imports that could take effect Dec. 15 are largely on consumer goods, including cellphones, laptop and desktop computers, toys and clothing.
UBS economists estimate those tariffs would drag on U.S. gross domestic product by either 0.1% or 0.2% in each of the four quarters next year. UBS projects overall GDP growth to average 1.1% in 2020, with tariffs generally weighing heavily in the first half of the year.
Aside from the fallout from the tariffs themselves, “the next read from them going into effect is that trade discussions are not going well,” said Walter Todd, chief investment officer with Greenwood Capital in South Carolina.
