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Why Trump's new trade truce with China is being hated on by Wall Street

Brian Sozzi
Editor-at-Large

Wall Street loves details and numbers. And when Wall Street doesn’t get the nitty gritty from management teams and politicians, it will often loudly voice its displeasure — usually by dumping stocks.

That’s pretty much the lay of the land at the moment in the markets following President Trump’s trade truce announced late Friday afternoon. The president quickly hyped a potential win in China buying $40 billion to $50 billion in agricultural products from struggling U.S. farmers. Stocks initially moved higher on the news, but then reversed course and continue to trade with a downward bias on Monday.

“It’s not a game-changer,” UBS head of equities derivatives research Stuart Kaiser tells Yahoo Finance of the preliminary trade agreement, which isn’t yet signed. Kaiser thinks if anything the trade truce sets a near-term floor in the stock market — but he nonetheless expects the S&P 500 to end 2019 at 2,550.

The major stock index is currently trading above 2,900.

Wall Street still not sold

Ask around Wall Street and the mood is that what Trump just announced doesn’t solve several serious issues that have held back the markets these past six months. For starters, $360 billion in tariffs on Chinese goods are still in effect. Many businesses, as a result, are still seeing their costs of production go up and earnings power go down.

WASHINGTON, DC - OCTOBER 11: U.S. President Donald Trump shakes hands with Chinese Vice Premier Liu He after announcing a "phase one" trade agreement with China in the Oval Office at the White House October 11, 2019 in Washington, DC. China and the United States have slapped each other with hundreds of billions of dollars in tariffs since the current trade war began between the world’s two largest national economies in 2018. (Photo by Win McNamee/Getty Images)

Secondarily, the limited deal does next to nothing to wipe out the uncertainty that has gripped Corporate America during the trade tussle, which has morphed into many companies delaying capital expenditures. CEOs of major companies have no reason to be more optimistic today — relative to a week ago — that putting capital to work would earn a strong return amidst a trade war with key export market China.

So, why bother pulling the trigger on expensive new equipment? And why should investors buy into the notion that slumping U.S. economic growth would magically ignite into 2020?

“The bottom line for us is that without a significant rollback of existing tariffs, we don’t see how a mini deal will change the currently negative trajectory of growth in the economy and earnings,” Morgan Stanley strategist Mike Wilson says.

Just provide more details

The market was bid up going into the U.S. and China trade talks on hopes of a true breakthrough. That didn’t come to pass, however. Considering any progress made on trade in the last week could be blown up with one Trump tweet or comment made in a pool session with reporters outside the White House, it’s likely that markets will revert back to being on edge.

If Trump wants to unleash that yearend rally in stocks that boosts his poll numbers, he would be wise to get the details of phase one of his trade deal out there into the markets and strongly signal that reaching phase three isn’t a pipe-dream during a hypothetical second term.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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