Despite some pre-market declines in key S&P 500 companies like Apple (AAPL) and Amazon (AMZN) following their earnings reports, the market is poised to move higher, bolstered by a surprising development: China is reportedly considering resuming trade talks with the U.S. This signals the possibility of negotiations between the two economic giants, a factor that could provide much-needed relief for the market, according to TheStreet.
Trade Talks Spark Hope, But Caution Remains
This trade talk development is seen as a constructive sign, though it’s important to temper expectations. As hopeful as this news may seem, experts believe these negotiations will take weeks, not days, and that the details of the deals will be the key to any long-term market impact. Currently, both Apple and General Motors (GM) have highlighted the financial strain caused by trade tariffs. Apple reported that tariffs could add $900 million in costs, while GM forecasted an increase of $4 billion to $5 billion in expenses this year. In response, a number of companies, including Stanley Black & Decker (SWK), Adidas (ADDYY), Procter & Gamble (PG), Best Buy (BBY), and AutoZone (AZO), are signaling that they may raise prices to offset these higher costs.
Retailers Feel the Impact of Tariffs
In the coming weeks, earnings reports from retailers and related companies will likely center around the impact of tariffs. Early reports of significant drops in cargo shipments from China suggest that these businesses are preparing for higher costs, which could lead to price hikes, signaling that inflation pressures may persist in the near term. Moreover, consensus S&P 500 earnings estimates are being revised down, and more adjustments are expected as the year progresses.
Economic Data and Trade Talks: A Convergence of Pressures
The latest economic data, including a contraction in GDP for Q1 2025 and rising inflation pressures reflected in the April ISM Manufacturing PMI, has created a sense of urgency for the White House to engage in trade talks. These talks, not only with China but also with the U.S.’s other key trading partners, are becoming critical. As initial trade deals begin to take shape, the market will get a clearer picture of the economic headwinds, inflation dynamics, and corporate earnings outlook.
Cautious Optimism as the Market Responds
While the market may initially respond with optimism following the news of trade talks, experts advise caution. The uncertainty surrounding tariffs, inflation, and the potential outcomes of the negotiations means that the market could experience fits and starts in the coming months. However, there is potential for upside, particularly for companies that have been hit hard by tariffs and could stand to benefit from lower tariffs or their eventual removal.
