Dow Jones Forecast:
- The Dow Jones surged to record levels on the back of a dovish FOMC rate decision and hopeful trade war headlines
- The Nasdaq 100 followed suit as growth-sensitive tech stocks, like the semiconductor sector, pulled the index higher
- Now, traders will have to wait for confirmation the deal has been signed by both parties before the Industrial Average can look to consolidate at record levels
Dow Jones Soars as US and China Agree to Trade Deal in Principle
US equities were sent soaring on Thursday as rumors of a US-China trade deal crossed the newswire, compounding optimism from Wednesday’s dovish FOMC rate decision. On the matter, President Trump issued an encouraging Tweet, saying the two sides are “getting very close to a big deal.” In response, risk appetite surged, and growth-sensitive semiconductor stocks charged to the forefront as the SOX ETF notched an all-time high alongside the Industrial Average and Nasdaq 100.
Dow Jones Price Chart: 1 - Minute Time Frame (December 12, 2019) (Chart 1)
Simultaneously, a collection of stocks ranging from Apple and Microsoft to Berkshire and Accenture touched all-time highs of their own before trade optimism was exchanged for apprehension when market participants learned the terms of the prospective trade deal were sent to China last week. Consequently, uncertainty took hold as investors became unsure of China’s likelihood to accept the proposal.
The terms would see the United States slash current tariffs by 50% and cancel the proposed December 15 hike in exchange for significant agricultural purchases, wider access to China’s financial services sector and better protection of intellectual property. Despite a track record of little tangible trade war progress, the broad-market reaction suggests investor confidence in the trade headlines this time around.
Evidently, such confidence was warranted as Bloomberg reported the United States has agreed to a trade deal with China “in principle” and the agreement now awaits President Trump’s signoff. The headline sent stocks soaring once more, as they returned to levels seen earlier in the session. While the market’s reaction suggests a concrete development, caution may still be warranted as the two parties reportedly “reached a trade deal in principle” weeks ago only for it to fizzle out before signatures could be penned. Thus, there is still ample opportunity for history to repeat itself which could see recent gains for the Dow Jones unravel. In the meantime, follow @PeterHanksFX on Twitter for updates and developments as the story unfolds.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
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