Stocks Rise as US, Mexico Near Trade Deal

Jon Sindreu

The Wall Street Journal

Biography
@jonsindreu
jon.sindreu@wsj.com

Updated Aug. 28, 2018 10:17 a.m. ET

U.S. stocks edged up Tuesday as the U.S. and Mexico neared a deal to revise the North American Free Trade Agreement.

The Dow Jones Industrial Average rose 51 points, or 0.2%, to 26101. The S&P 500 added 0.2% as did the Nasdaq , a day after the technology-heavy index went above 8000 for the first time.

Shares of materials and energy companies were among the gainers in the S&P 500 shortly after the market opened, both increasing 0.5%. The utilities and telecommunications sectors fell.

The threat of what are seen as protectionist U.S. policies has dampened global market sentiment through most of this year. The outcome of the Nafta deal is seen by some investors as a bellwether for President Trump’s future dealings with China.

President Trump announced that officials had completed a bilateral trade deal between the U.S. and Mexico.

The prospect of Mr. Trump successfully negotiating new trade deals is likely to be taken by investors as a hopeful sign that a major trade war will be avoided, analysts said. However, some money managers remained unconvinced after Mr. Trump said Monday that Canada would be severed from the North American trade area if necessary.

Christian Lawrence, senior market strategist at Dutch lender Rabobank, told clients in a note that “today’s announcement does make a new Nafta agreement more likely,” but it “also increases the risk that an agreement will not be reached with Canada and we eventually see a move to bilateral agreements.”

By contrast, Mohammed Kazmi, a fund manager at UBP, believes risks of a trade spat are fading.

“We can see a Canadian deal coming through soon,” he said. “What it really shows is Trump trying to get some quick wins ahead of the next election. He is trying to distract the market showing he can make deals and support equity markets.”

Many investors and analysts believe that it is equity markets outside of the U.S. that would reap most of the gains of Mr. Trump’s more conciliatory attitude toward trade deals. This summer, aggressive U.S. foreign policy has pushed investors into the relative safety of U.S. stocks and bonds.

The WSJ Dollar Index, which tracks the U.S. currency against 16 others, was down 0.2%.

President Trump announced the trade agreement at the White House. Photo: kevin lamarque/Reuters

Because economic growth and earnings there are stronger, “the U.S. is best-in-class and there’s no way to avoid U.S. assets,” said Witold Bahrke, senior macro strategist at Nordea Asset Management. “And on top of that you have these trade issues, which increase the divergence between the U.S. and the rest of the world.”

In August, the U.S. became the top equity region for international fund managers for the first time in five years, according to a monthly survey by Bank of America Merrill Lynch.

The Stoxx Europe 600 was up 0.2%. Japan’s Nikkei Stock Average closed up less than 0.1% and Hong Kong’s Hang Seng gained 0.3%.

Write to Jon Sindreu at jon.sindreu@wsj.com

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