Stocks Rise On Solid Economic Data, Despite Looming China Tariff Deadline

Topline: Wall Street is rallying on the back of solid economic data, with Friday’s blockbuster jobs report showing that the labor market is still a bright spot for the U.S. economy, which could help the stock market finish off the year strong despite ongoing uncertainty over the looming China tariff deadline on December 15. 

• The S&P 500 is up more than 1% while the Dow Jones Industrial Average has risen 1.24% so far on Friday, a rally which helped both indexes recover losses from earlier this week, when markets struggled with mixed signals on U.S.-China trade.
• The Labor Department’s November jobs report showed that the U.S. labor market grew at its best rate since January, adding 266,000 jobs, easily beating the 187,000 expected by Wall Street and suggesting that the economy’s momentum can continue into next year.
• Stocks also surged on news that the unemployment rate ticked down to 3.5% from 3.6%, which matches the lowest level since 1969.
• As the Federal Reserve prepares to meet again next week, strategists see November’s strong jobs report making another interest rate cut less likely (the Fed has cut rates three times so far this year), according to CNBC. 
• Despite solid job growth and steady consumer spending dampening recession fears, the big remaining variable is the looming tariff deadline, with the Trump administration  poised to tax another $156 billion of Chinese goods on December 15. 
• If Trump imposes tariffs, which China has asked to be canceled as part of a phase one trade deal, that could cause tensions to escalate and threaten the stock market’s year-end run. 

Crucial quotes: “Markets are fairly confident we will see President Trump pass on the December 15 tariff threat,” says Edward Moya, senior market analyst at Oanda.

“If China tariffs go into place on December 15, we’ll see some real volatility and it won’t be as cheerful holiday season,” predicts Mark Freeman, chief investment officer at Socorro Asset Management. “If Trump holds off on tariffs, we’ll see the stock market’s positive momentum carry into year-end.”

Key background: November’s blockbuster jobs report comes amid a challenging year for the U.S. economy, with a slowdown in global economic growth and the ongoing U.S.-China trade war weighing on Wall Street investors. But recession fears have been on the back-burner recently, as the stock market reached several new highs, and other economic indicators, like consumer spending, remain solid.

Earlier this week, however, trade tensions appeared to escalate—especially after Trump signed into law a bill supporting pro-democracy protests in Hong Kong, which caused China to retaliate by sanctioning several U.S.-based NGOs. Trump’s approval of the Hong Kong legislation notably “stalled” trade negotiations, according to Axios, which reported that Trump is expected to hold off on his planned December tariffs to keep a phase one deal alive. Chinese officials have indicated that for a deal to be signed, the U.S. must also remove existing tariffs—and not just halt those planned to take effect on December 15, according to the Global Times. Trump later said on Thursday that the two countries were making progress with a phase one deal, and on Friday, China extended an olive branch by announcing that it would waive tariffs on some U.S. soybeans and pork imports.

What to watch for: Whether or not the president imposes additional tariffs on Chinese goods, starting on December 15, could make or break the stock market’s year-end rally.