Waiting and Seeing: Market Cautious Ahead of Fresh Round of US-China Talks

Traders and investors returned to the U.S. equities market after a three-day holiday weekend in a cautious mood ahead of another round of trade talks between the world’s two largest economies.

6 min read

Key Takeaways

  • Walmart reports better-than-expected results

  • Oil gains on demand hopes amid tight supply

  • Fed minutes scheduled for release this week

(Tuesday Market Open) Traders and investors returned to the U.S. equities market after a three-day holiday weekend in a cautious mood ahead of another round of trade talks between the world’s two largest economies.

This set of negotiations, in Washington this week, comes after a round of talks last week in Beijing as the March 1 deadline approaches. If there’s no resolution by then and that deadline isn’t extended, tariffs on certain Chinese goods are set to increase to 25% from 10%, escalating a tit-for-tat trade dispute that has dogged Wall Street for months.

A resolution would remove a major headwind for the market concerned that the trade war will dent global economic growth. It would also remove a major source of uncertainty from companies, perhaps enabling them to make decisions on spending with more clarity. 

In corporate news, retailing titan Walmart (WMT) reported earnings that beat analyst expectations, helping to send its shares up more than 3.6%. That’s probably welcome relief to bulls invested in the retail industry after last week’s dismal retail sales helped pressure stocks. 

With the majority of the S&P 500 companies having reported earnings, this latest earnings season is coming to a close. With less in the way of corporate guidance for investors to chew on, the news flow could become increasingly important in terms of moving the market.

Friday Rundown

On Friday, investors appeared optimistic about a trade deal between the United States and China to end months of market handwringing. Talks ended in Beijing and were expected to pick back up this week in Washington. 

Adding to the optimism on Friday, President Trump signed a spending bill that avoided another partial government shutdown. The previous funding impasse had increasingly been a source of market worry as costs to companies mounted. 

But Trump also declared a national emergency to secure funding for a wall along the U.S.-Mexico border. The market appears to be taking that news in stride. 

Oil on Fire

The increased optimism over a U.S.-China trade deal spilled over into the oil market, with both U.S. crude and the international benchmark gaining ground Friday on hopes that a resolution to the trade dispute might stave off further economic damage that could dent demand for oil. That helped the energy sector to be among the best performers among S&P 500 (SPX) stocks on Friday.

The gains in oil come on the heels of news that OPEC had cut its output in January and a Financial Times report that Saudi Arabia would further cut its production. (See chart on oil prices below.)

Rising oil prices can be inflationary, but prices have been low after tanking last year on worry about global demand even as supply was high. So it doesn’t appear that the recent surge in prices poses problems on the inflation front.

Speaking of inflation, investors may want to tune into the release of the minutes from the January Federal Reserve meeting to see if they can gain any new clues about the central bank’s views on inflation and monetary policy. For now, it seems that the Fed has paused on its path of interest rate hikes amid muted inflationary pressures. 

Week Light on Data

This holiday-shortened week is not only light on trading days. There also are relatively few economic reports scheduled for release during the four days the market is open.

Still, it seems likely that a report on durable goods orders for December could be of interest. A Briefing.com consensus expects durable orders to rise by 1.7%.

Existing home sales data for January, expected at a seasonally adjusted annual rate of 5.1 million, could also be important to note, given that softness in the housing market has been a thorn in the side of the U.S. economy for some time.  

The Conference Board’s leading economic indicators for January could also be interesting to keep an eye on, especially the consumer expectations portion of the index. 

That reading comes on the heels of disappointing retail sales figures and consumer confidence numbers for January that declined more than expected. Recent consumer credit data has also appeared to continue to paint a picture of an American consumer that, while seemingly not down and out, hasn’t been showing as much strength as retailers might want.

Figure 1: Oil Heating Up: U.S. crude futures, shown in this candlestick chart, have been on the rise amid optimism about demand from the global economy even as supply is seen as tight. Data Source: CME Group Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

China’s Demographics: There’s been plenty of focus recently on the potential for slowing economic growth in China as the trade war with the United States drags on. But there also appears to be a longer-term headwind blowing against growth in the Asian nation. As the Wall Street Journal reported, China’s cessation of its one-child policy in 2016 isn’t having the desired effect, as data showed a decline in newborns last year, which saw the lowest level of births since China’s Great Famine in 1961. 

The demographic trend makes lowering taxes to stimulate growth more difficult and makes it harder to encourage an aging population to spend more, the paper reported. “The demographic outlook is fueling fears China could grow old before it gets rich, leaving it with too few workers to cover the cost of its aging population,” the Journal article said. “That could stoke economic troubles that far outlast turbulence from trade battles this year.”

Exceeding (Low) Expectations: As we’ve said many times in this column, earnings drive the market, and it’s not just the quarterly profit figures that are important. It’s also what company executives say they’re thinking about conditions going forward. During this earnings season, executives have tended to not be as upbeat with their outlooks. “With the release of fourth-quarter results, many companies took the opportunity to lower expectations for the first quarter or the full year of 2019 amid high levels of uncertainty regarding trade, the government shutdown and signs of slowing global growth,” investment research firm CFRA said in a note last week. 

Still, the market has moved higher so far this year. That could be because, as CFRA put it, “stocks overshot to the downside last year.” The market’s buoyancy in the face of the dismal outlooks could also be because investors already had low expectations and, despite the outlooks, the market may end up doing better than hoped. According to the research firm, investors as of Dec. 31, seemed to have priced in 2019 earnings growth of 0% or less. “The number of companies cutting guidance exceeded historical trends, but the reductions didn’t spook investors because they weren’t as bad as investors braced for,” CFRA said. And as of last week, 2019 earnings growth expectations seemed to have stabilized around a better-than-expected 3.2%, CFRA said.

Good Trading, 


Helpful Educational Content and Programming

  • Check out all of our upcoming Webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.

  • Looking to stay on top of the markets? Check out the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.

Economic calendar for week of Feb. 18. Source: Briefing.com

Key Takeaways

  • Walmart reports better-than-expected results

  • Oil gains on demand hopes amid tight supply

  • Fed minutes scheduled for release this week

Call Us

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.  

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.

Scroll to Top