The recent weekend meeting between the United States and China has resulted in a significant development: a 90-day pause in the ongoing trade war. That news has sent the stock markets into a frenzy. Investor optimism is high. Equities are booming as investors jump on the prospect of easing trade war tensions. Despite these bullish changes in market dynamics, gold prices can’t seem to catch a break.
So far, the freeze in the trade war has helped stoke a strong market rally. In the days after that announcement, stocks staged a strong recovery as investors’ confidence returned. Meanwhile, Wall Street is recovering quite nicely. Many analysts are confident that this resurgence will both help attract investment and make U.S. markets more attractive for investors to begin reinvesting.
Market Reactions to Trade Developments
IG chief market analyst Chris Beauchamp pointed to the importance of this pause in trade hostilities. According to Beauchamp, the peace deal in the U.S.-China trade war has sent unexpected shockwaves through Wall Street. This momentum continues from the rebound that began earlier this year. “The news has reinvigorated market sentiment, allowing stocks to reclaim lost ground,” he stated.
While the stocks best-case scenario remains in place, fears do persist about the possible worsening of economic data in the next few months. For one thing, investors are worried about how long this current rally will last. They view the pause as a time for growth, but they know that troubling economic indicators below the surface can make progress difficult.
Gold Prices Remain Under Pressure
As stocks continue to soar, gold prices have had a rough go with headwinds mounting. Gold in May and June Historically, gold tends to flatline during May and June — this year is no exception. Expectations for a new and more pragmatic trade policy to come out of Washington have long been dashed, analysts told POLITICO. This change has reduced gold’s attractiveness as a safe-haven asset. With positive sentiment surrounding U.S.-China relations, investors are preferring equities rather than gold.
Looking at gold, Beauchamp noted that its recovery from April’s lows was beginning to run out of steam. This was just a few weeks before the announcement of the trade pause. Combined with positive news from the U.S.-China trade discussions, these have turned market sentiment around drastically. Yet gold’s inability to find its legs illustrates an often complicated connection between commodity prices and geopolitical news.
Future Implications for Investors
Though Wall Street powers on with its upswing, financial forecasters are warning investors to stay on their toes. This pause in the trade war provides short-term relief, defusing uncertainty, for example, and kindles long-term hope. Possible economic downturns may put a damper on that enthusiasm going forward. Beauchamp cautions investors to pay attention to macroeconomic signals and shifts in the market to position yourselves wisely.
This is an incredibly exciting, yet challenging time to be an investor. As equities break records and gold languishes, everyone from hair stylists to day traders are re-assessing their portfolios and strategies. That 90-day timeout on U.S.-China trade tensions constitutes a watershed moment for market players, moving forward in this unforgiving and complicated landscape.