The stock market has been encouraged by easing tensions between the US and China in recent weeks, but investors were largely unmoved by the announcement of a trade deal between the superpowers on Tuesday.
US stock futures failed to climb on news of the deal late Tuesday evening. While markets are edging higher on Wednesday, that’s largely because the consumer price index report for May showed inflation was tamer than expected at 2.4% year-over-year.
Here’s where major indexes stood at 10:20 a.m. ET:
S&P 500: 6,055.26, up 0.28%
Dow Jones Industrial Average: 42,997.65, up 0.31% (+130.78 points)
Nasdaq Composite: 19,788.36, up 0.37%
On the trade front, observers say it’s looking more likely that the trade war will shake out like it did during President Donald Trump’s first term, with talk of constructive deals even as tensions remain elevated.
Simply put, investors see a long and winding path ahead, and knee-jerk reactions to trade announcements have largely subsided since the chaos of “Liberation Day” in April.
The framework agreement announced on Tuesday outlines how the two nations will continue trade talks. Importantly, it involves China allowing exports of rare earth minerals, while the US eases up on restrictions for exports of advanced tech to China, like semiconductors.
The reaction is far more muted than how the market reacted last month, when stocks popped after the US struck a rough framework deal with China that lowered tariffs between the nations for 90 days.
Art Hogan, the chief market strategist at B. Riley Wealth, told Business Insider that markets are reacting to trade talks similarly to when the US-China trade war first kicked off in 2018. He pointed to regular pullbacks in stocks during Trump’s first term as traders digested the lack of progress in US-China negotiations.
“We still have that muscle memory from Trump 1.0, that dealing with China is difficult and there’s a multitude of issues,” Hogan said. “I don’t think we’re going to solve this in short order and likely never solve it in the longer term.”
He added that markets are likely waiting for a more positive catalyst, pointing to more than 100 nations that have yet to strike a trade deal with the US.
Peter Berezin, the chief global strategist at BCA Research, said the framework made only small progress on negotiations with China.
“I would say that the ‘deal’ in London simply restores things to how they were right after Geneva,” he told BI in an email. He added that he expected tariffs on China to remain high “for the foreseeable future.”
Strategists at Deutsche Bank also said that tariff talks appear to mirror the 2018-2019 period, when the US and China didn’t make much headway in resolving key issues.
Back then, the US said that China had unfair trade practices related to industries like agriculture and manufacturing. It also said China had unfairly transferred technology and stolen intellectual property from the US.
Deutsche Bank pointed out that the agreement announced Tuesday skipped over fentanyl-related tariffs that Trump implemented against China earlier this year.
“So while the mood music has stayed positive, investors may be wary of the pattern that emerged during the previous US-China trade talks in 2018-19,” strategists wrote. “So there’s perhaps a little disappointment this morning that we haven’t yet got a bigger announcement.”
The agreement also appeared to lack detail that markets were looking for, David Morrison, a senior market analyst at Trade Nation, wrote in a note.
“The big question is what kind of trade deals can the US negotiate that will be good enough to get the indices to fresh records?” he said.
US stocks have whipsawed this year amid the turmoil surrounding tariffs and incremental news of trade agreements between the US and other countries.
Indexes have erased their steep losses since the April 2 tariff announcements, with major averages now positive year-to-date.
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