One of the most pressing issues for investors heading into the State of the Union is U.S.-China trade.
Relations between the two countries appeared to have thawed recently. Last week, Trump said Chinese President Xi Jinping wrote in a letter that he hopes both sides will meet each other halfway on trade. Strategists believe Trump could a U.S.-China summit meeting.
China and the U.S. have been engaged in a trade war since last year. Both countries have slapped tariffs on billions of dollars worth of their goods. These tariffs have sent ripples through financial markets as investors assess their impact on corporate profits. The two countries also set a March 2 deadline to strike a permanent trade deal. Otherwise, additional U.S. levies on Chinese goods could take effect.
“Trade talks between the U.S. and China are trending positive but a deal will take further negotiations and a face-to-face meeting between Trump and Xi,” Raymond James public policy analyst Ed Mills said in a note to clients. “We believe that the market has been anticipating a ‘mini deal’ where existing tariffs remain, China purchases more U.S. product, and an extension is given on enforcement of IP/industrial policy reforms. We will gauge market reaction against this expectation.”
If the March deadline is extended, current tariffs stay in place and additional ones do not take effect, shares of companies like Qorvo, Qualcomm and Wynn Resorts could outperform, according to Strategas Research Partners. These companies have high revenue exposure to China, thus stand to benefit the most from U.S.-China trade tensions dissipating.
“There is speculation he may announce a date for a meeting with Chinese President Xi, and he may also push Congress to approve the new, revised NAFTA known as USMCA,” Fundstrat’s Block added.
Any announcement made on the trade front could also coincide with one regarding a meeting with North Korean leader Kim Jong Un. This could boost stocks at the expense of gold prices if such a meeting decreases geopolitical tensions.