Market Insights

Did China just blink in its trade war against President Donald Trump? The market seems to think so.

Last night, a story crossed the wires saying that Beijing would send a trade delegate to Washington this month. The news came less than a week before the U.S. was scheduled to begin hearings on tariffs from early last month. (It’s all part of that $200 billion tariff announcement by the White House that caused a brief selloff on July 11.)

The ground has shifted America’s favor since then. As cited on Market Insights, China’s numbers are slowing while U.S. growth remains strong. Japanese trade data overnight also showed a dramatic narrowing of its massive trade surplus with the US. That shows the success of our leader’s hard-ball tactics. Now there’s a growing sense he will resolve trade disputes with China before the November mid-terms.

Investors responded by plowing money into major global stocks like Boeing (BA) and Caterpillar (CAT), key beneficiaries of a deal with Beijing. That’s lifting the mega-cap Dow Jones Industrial Average 1.7 percent, its biggest gain in over four months.

Dow Jones Industrial Average, with comparison to IWM below.

This chart shows the Dow Jones since the start of 2017. The lower graph compares the index’s performance versus the domestically focused Russell 2000 (IWM). Notice how much bigger companies have lagged this year versus last. Trade anxieties are a big reason for that relative weakness.

Another group that climbing on hopes of business in China are the fiber-optic companies, led by a gain of almost 6 percent in Viavi (VIAV). Click here for our special report on this long-forgotten subset of tech.

Bottom line: Markets are forward-looking instruments. And right now they’re starting to price in a resolution of President Trump’s trade wars.