The Dow Jones Industrial Average rebounds on talk of possible US-China trade deal

From Yun Li : Stocks tried to rebound from a deep sell-off this week as investors still remain on edge about an escalating trade war between the U.S. and China.

The Dow Jones Industrial Average rose about 11 points on Wednesday, falling from its intraday high of 131 points. The S&P 500 and Nasdaq Composite were both about little changed. The Dow was down 75 points at its low.

Major averages hit their highs of the day after White House Press Secretary Sarah Sanders affirmed President Donald Trump’s comments earlier that China is coming this week to make a deal. But they soon pared the gains after China said it will take “necessary” countermeasures if U.S. raises tariffs Friday.

The Chinese Commerce Ministry announced Wednesday that Beijing will retaliate if U.S. tariffs on $200 billion of Chinese goods is hiked to 25% from 10%.

Sanders told reporters earlier on Wednesday that the White House has gotten “indications” the Chinese delegation coming to Washington wants to make an agreement, following Trump’s tweet this morning saying China still wants to cut a deal.

“I would still say this is very precarious, and you are still getting the U.S. spin on things,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “I think tomorrow is a wildcard.”

Investors are worried that U.S. and China would be unable to resolve a dispute over a proposed trade agreement before new tariffs threatened by Trump are implemented Friday. Chinese trade officials backtracked on key aspects of a trade deal draft, undercutting hopes that the Chinese delegation led by Vice Premier Liu He this week could salvage the deal, according to a Reuters report.

? “It’s another cliffhanger,” said Larry Adam, chief investment officer at Raymond James, referring to Trump’s tariff threat. “There are so many levers that can be pulled here. I still think ultimately we do end up getting a deal because it’s too important for both economies.”

Trump said in a Twitter post Sunday the U.S. would hike tariffs on Chinese goods as soon as Friday, which caught investors off guard and sparked a global sell-off. The Dow on Tuesday posted its biggest decline since January 3, as traders realized Trump’s threat was not just a negotiation tactic after U.S. Trade Representative Robert Lighthizer confirmed the higher levies are coming this week.

The Dow lost nearly 540 points during Monday and Tuesday amid the trade dispute, while the S&P 500 and Nasdaq were down more than 2% after both hit all-time highs last week. All major averages are now on pace to post their worst week in two months.

If tariffs do go up to a full 25% on Chinese goods, it could start to impact U.S. companies’ earnings growth and consumer confidence going forward, Raymond James’ Adam said.

“If the companies absorb the increased cost, they could potentially hamper earnings growth, and if it goes onto the consumer, that’s like a tax. That could hamper some consumer sentiment,” he said.

Companies that hinge on a trade agreement between the world’s two largest economies were mixed on Wednesday. Caterpillar and Intel were both down slightly, while Apple climbed more than 0.6%.

However, some market participants believe the impact from higher tariffs would be somewhat limited to the broad market.

“An increase in the tariff rate probably wouldn’t result in a complete breakdown in negotiations and as a result the S&P 500 should be able to hold at 2850 or above,” said Adam Crisafulli, a J.P. Morgan managing director. “There is still a huge swath of Chinese imports not subject to tariffs and this will form the basis of additional talks.”

Data released Wednesday morning in China suggested that its trade surplus in April stood at $13.84 billion, well below expectations. However, its trade surplus with the U.S. rose to $21.01 billion in April from $20.5 billion in March.

Ride-hailing company Lyft’s stock slid 7% Wednesday after the company reported a heavy loss for its first quarterly earnings report as a public company. Some Wall Street analysts still believe the results were “a good first step’ to profitability.”

Investors are also monitoring corporate earnings. Disney and Fox will report after the closing bell. Shares of Disney were up 0.6% ahead of the earnings report.

So far, 88% of the S&P 500 companies have reported their first-quarter earnings. Earnings are beating by 6.7%, with 73% of companies exceeding their bottom-line estimates, according to Credit Suisse.

The SPDR Dow Jones Industrial Average ETF Trust (DIA) was trading at $259.89 per share on Wednesday afternoon, up $0.37 (+0.14%). Year-to-date, DIA has gained 5.93%, versus a 8.45% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 83 ETFs in the Large Cap Value ETFs category.

This article is brought to you courtesy of CNBC.