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The Dow notched its best daily point gain since October 2008 on Monday as fears of tightening global trade restrictions eased and the blue-chip index rebounded from its worst week in two years.
Wall Street appears to be lowering the odds of an all-out trade war. Signs have emerged that China and the U.S. are in negotiations to work through their trade differences and avoid a prolonged fight that could harm the global economy.
The Dow Jones industrial average rose 669.40 points, or 2.8%, to close at 24,203. It was a broad advance on Wall Street with the Standard & Poor’s 500 rising 2.7% and the technology dominated Nasdaq jumping 3.3%.
However, the Dow’s third-best point gain in history only erased about half of last week’s losses, when the blue-chip average tumbled more than 1,400 points, or 5.7%. Traders reacted negatively last week to President Trump’s proposal to levy up to $60 billion in tariffs on Chinese imports, and Beijing retaliating with threats of slapping $3 billion in import fees on a small list of U.S. goods.
Investors now appear to be trading on the thesis that the tit-for-tat tariff announcements by the world’s two largest economies last week was more about negotiating tactics rather than a true desire of the U.S. or China to elevate the trade skirmish to a more aggressive level.
“Any actions or signs that things won’t spiral out of control should be seen as a positive for stocks,” says Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Cooler heads can prevail and allow the global economic expansion to continue uninterrupted.”
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On Monday, Peter Navarro, a White House trade advisor, said the U.S. is “talking with the Chinese” and that he was “hopeful that China will work with us” to help close the U.S.’s $375 billion trade deficit with the world’s second-biggest economy. Over the weekend, Treasury Secretary Steven Mnuchin told Fox News the U.S. is trying to reach a deal with China.
The latest thinking on Wall Street is that both sides have too much to lose in a trade war and will work to avoid such an outcome.
“There’s too much at stake,” says Joe Quinlan, chief market strategist at U.S. Trust. “Policy markers understand that the best and fastest way to harm their constituents is to start a trade war and deny voters low-cost goods produced from around the world while tanking global financial markets.”
Like many money managers, Gary Kaltbaum, president of Kaltbaum Capital Management, says last week’s talk of a trade war was overdone.
“It’s just a bunch of positioning back and forth,” Kaltbaum says.
Kaltbaum is hopeful the two sides will come to an agreement behind closed doors.
“Hopefully, they get the job done,” he says. “But it is not over yet.”
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