Stocks may jump another 11% in case of a trade deal

U.S. stock indexes have rallied impressively in 2019, partly on a more dovish Fed and greater optimism that the U.S. and China will reach a deal that lowers tariffs between the world’s largest economies. However, the S&P 500 index’s SPX, +0.18%  year-to-date rally of 10.9% has led some analysts to predict that the market is setting itself up for disappointment once a final deal is announced, assuming one is reached at all.

Neil Dutta, head of economics at Renaissance Macro Research, however, made the case in a Wednesday research note that the market has more room to run before it makes up the gains lost due to rising Sino-American trade tensions. “Since January 2018, we estimate that trade tensions have shaved a cumulative total of 300 points off the S&P 500,” wrote Dutta. “In other words, if not for all the negative trade news over the last 14 months, the S&P 500 would be about 11% higher.”

“That said, trade has been more of a tailwind to equity prices since the start of 2019,” he continued. “Year-to-date, the S&P 500 has jumped 107 points on days of favorable trade news,” he continued, adding that while optimism is growing, the market is “still not back to neutral on this issue.” The interaction between two or more of the factors analyzed by Dutta, however, could result in the market reaction to a successful resolution of the U.S.-China trade standoff being more muted than these numbers suggest.

Stocks could rally another 11% on a U.S.-China trade resolution, says analyst, MarketWatch, Feb 21