With a steady barrage of trade-war tweets that have alternated between promise and threat, Trump has screwed with investors’ heads for so long that most of them simply want to get it over with. They undoubtedly would love to see the U.S. and China settle their differences. But stock-market bulls should be careful what they wish for. Indeed, this is a classic case of ‘buy the rumor, sell the news’, since whatever the two sides agree on is unlikely to live up to the optimism that prevailed just a few months ago. Such notions have slowly succumbed to cynicism and despair, but shares have risen anyway. Why? Probably because Trump and Xi Jinping appear to have avoided the worst-case scenario — i.e., declaring irreconcilable differences and walking away from the negotiations openly hostile toward each other.
The story being spun ahead of The Big Announcement is that tariffs will be reduced or temporarily rolled back pending further talks designed, of course, to drag on indefinitely. Although any agreement would be better than none, it is unlikely to reverse the economic implosion that has beset Europe and China and which appears to be gaining force in the U.S. In the meantime, the imminence of a deal has restrained sellers who appear eager to clobber stocks ‘on the news’. If the broad averages rally initially, don’t expect the exuberance to last more than a day or two, if that long. We’ll gladly fade the spike, since any feel-good reaction will be out of kilter with a darkening reality.