Stocks flying high on trade optimism, investors still concerned

Markets are rallying ahead of Wednesday’s open on hopes for a resolution in the US-China trade war. But trade tensions remain a major source of anxiety for investors.

US stocks were up all day Tuesday after President Donald Trump tweeted that he had a “very good” discussion with China’s President Xi Jinping, and would meet with him next week at the G20 summit in Japan.

After the markets closed, futures continued to climb when Trump told reporters that talks between the United States and China would start on Wednesday. Dow and S&P 500 futures were up about 0.05% late Tuesday evening. Meanwhile, Nasdaq Composite futures were up around 0.07%.

“Frankly our people are starting to deal as of tomorrow, the team is starting to deal,” Trump said at the White House. “China would like to make the deal. We would like to make the deal, but it has to be a good deal for everybody.”

Stocks were helped Tuesday by other news, too, including the possibility that the European Central Bank could inject the eurozone with an economic stimulus, along with Wall Street expectations for an eventual interest rate cut by the US Federal Reserve.

But trade has been particularly front and center in recent weeks. After all, it was only last month that US markets plunged as Trump escalated his trade spat with China.

Trade troubles are weighing heavily on investors. Geopolitics and international trade tensions are their number one concern, according to a recent report from State Street Global Advisors, which surveyed 497 financial advisers.

Optimism is all well and good, but sentiment alone doesn’t make a trade deal. Until an agreement between the United States and China is set in stone, the risk of escalating tensions remains.

But the fact that markets have been climbing in spite of the trade war and tariff threats indicates that investors are confident that a solution will eventually be found, said Michael Arone, chief investment strategist at State Street Global Advisors.

One other thing to remember: China isn’t the only source of tension on trade. Washington has aggravated others, including the European Union and India. China just happens to be the biggest fish in the pond.

Beyond trade, the State Street survey found that fears of a global recession and the eventual end of the US stock bull market keep investors up at night.

“This bull market has been met with a lot of skepticism,” Arone said.

US stocks have been on a bull run for more than a decade, since just after the financial crisis. It is the longest such expansion on record.

But all good things usually come to an end — and investors are fearing just that.