Donald Trump securing a trade truce with China’s Xi Jinping hasn’t seen Wall Street rejoicing. Why is this so?

While Donald Trump has secured a trade truce with China’s Xi Jinping, Wall Street hasn’t hailed the apparent agreement with a rejoicing rally. Maybe there is a “Peace for our time” reservation, which might mean global stock markets simply have to live with the threat of China and the US President’s potential ‘outside the square’ reactions.

For non-historians, British Prime Minister Neville Chamberlain used the above quote after meeting with Adolf Hitler in 1938, when the Munich Agreement was created. By the way, one day later, on the first of October, the German monster moved troops into the Sudetenland, which is now a part of the Czech Republic.

While you have to hope this trade truce lasts longer than the Munich Agreement, one thing has become clear, financial markets and investors have to accept that Washington and Beijing are always going to be a ‘must watch’ issue when trying to make money in stocks. “This is not at all over,” said Jed Ellerbroek, portfolio manager at Argent Capital Management on CNBC. “The Trump-related trade volatility is going to remain a feature of our capital markets as long as he’s president. That’s my assumption, and yesterday’s result affirms that.”

Before working out why Wall Street wasn’t cheering this trade truce, let’s examine what Trump and Xi agreed to, so here goes:

1. Beijing agreed to pause for one year the sweeping export controls on rare earths announced on October 9.2.
2. The US will cut tariffs on China related to fentanyl to 10% from 20%.
3. The overall US tariffs on Chinese exports have been cut to around 47%.
4. The threat of 100% tariffs on Chinese goods has been dropped.
5. The US will postpone a rule announced on September 29 that blacklisted majority-owned subsidiaries of Chinese companies.
6. Both countries agreed to not charge fees on ships in each other’s ports for one year.
7. CNBC reported: “It is not entirely clear what China has agreed to in key areas such as agriculture and energy purchases from the U.S. and cooperation on fentanyl trafficking.”
8. Treasury Secretary Scott Bessent said China will buy 25 million metric tons of soybeans annually over the next three years.

Rare earths are being seen as a really important bargaining chip for China as Piper Sandler analyst, Andy Laperriere, told clients in a note: “Xi was ready for Trump in his second term and has a powerful weapon in rare earths.  China is getting the better of the US in these recent truce negotiations.”

According to our SPI Futures, our stock market is positive on talk of a trade truce so why isn’t Wall Street cheering?

Well, for starters, stock markets often ‘buy the rumour and sell the fact’. Second, the truce still leaves China with 47% tariffs. Third, while both parties can change their stance on the turn of a dime, it’s fair to argue that a bad meeting with Trump and Xi agreeing to precious little would have sent stocks down.

However, the reality is that the big players on Wall Street have had to digest two other negative developments that undoubtedly explain the lack of cheering for this trade truce.

On one hand, Fed boss Jerome Powell upset a lot of investors suggesting the expected December rate cut wasn’t a done deal. This actually led to the 30-year fixed rate home loan rising to 6.96% because money markets had already priced in this week’s rate cut and another in December. (By the way, note what home loan rates still are in the US, which can’t be great for future economic growth.)

The second reason US stocks are down is that big tech companies like Meta and Microsoft reported worse than expected. This has raised some short-term doubts about the market’s enthusiasm for these companies that are planning big outlays on AI.

Despite some of these negatives, Scott Wren, senior global market strategist at the Wells Fargo Investment Institute, gave the following advice via CNBC: “Investors are hearing a lot of headlines this week, but our suggestion is to look through the noise of the day and focus on the trends in place and those likely to offer attractive returns looking ahead.

“We continue to see pullbacks, should they occur, as buying opportunities and are targeting 7400–7600 for the S&P 500 by the end of next year.”

That’s a 10% plus call for US stocks! Let’s hope he’s on the money and the duration of this trade truce could be the big determinant of whether Wren is right with his call.