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China Open to Trade Deal, Tech Stocks and Markets Rally

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Aug. 26 2019, Updated 12:18 p.m. ET

Markets made a comeback on Monday. President Trump indicated that China is ready to reconcile. Apparently, China is ready for a trade deal.

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Dow Jones gained 150 points 

The Dow Jones Industrial Index (DJIA) rose by 150 points or 0.6% on Monday. The S&P 500 ETF (SPY) and the Technology Select Sector SPDR Fund (XLK) rose 0.5% and 0.8%, respectively.

According to a CNBC report, President Trump claimed that he spoke with President Jinping. Trump said, “China called last night our top trade people and said ‘let’s get back to the table’ so we will be getting back to the table and I think they want to do something. They have been hurt very badly but they understand this is the right thing to do and I have great respect for it. This is a very positive development for the world. I think we are going to have a deal. They have supply chains that are unbelievably intricate and people are all leaving and they are going to other countries, including the United States by the way, we are going to get a lot of them too.”

Will the US-China trade war end?

While President Trump didn’t discuss the details of the call, he’s optimistic about a trade deal with China. Last week, the trade war escalated quickly, which caused DJIA to fall by 623 points on August 23. China announced tariffs between 5% and 10% on US products worth $75 billion. Shortly after China’s announcement, President Trump stated that the US would increase tariffs from 25% to 30% on Chinese goods worth $250 billion and more.

The US and China appear to want a trade deal. The global economy is already showing signs of a slowdown. The trade war will have a negative impact on global GDP growth if it continues to escalate.

A trade deal would be a major win for President Trump. Notably, the presidential election is just a year away. If the trade war ends, the markets would continue to rally at least in the short term.

Tech stocks lead gains

China’s top tech stocks are trading in the positive territory on Monday. Baidu (BIDU) and JD.com shares have risen 2.1% and 2.8%, respectively. Semiconductor stocks that have high exposure to China including NVIDIA (NVDA), Broadcom (AVGO), and Qualcomm (QCOM) rose 1.7%, 1.8%, and 1.2% in early market trading.

The VanEck Semiconductor ETF (SMH) has gained 1%, while the iShares semiconductor index (SOXX) has risen 0.9% on Monday.

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