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By April Joyner
NEW YORK, April 28 (Reuters) – While optimism sparked by the prospects for US-Chinese trade détente is showing signs of wear and tear for the broader US stock market optimism with regard to the Chinese economy could strengthen the actions of the materials manufacturers.
The shares of the S & P 500 industrial and technology companies, which had been disrupted by last year's tariffs, as well as slowing global demand, were very sensitive to the progress of US-US trade relations. United and China and strengthening the Chinese economy. This year, these sectors have surpbaded the ascent of the S & P 500, which hit a record at the close on Tuesday.
Commodity stocks, however, have not been as sensitive, although they should also benefit, as a stronger Chinese economy lifts global consumption and industrial production. While China has taken steps to boost its economy, its economic data has become more optimistic. This in turn could help global growth, which has deteriorated because of China's cooldown.
"What we are seeing is that China is spending more on stimulus: fiscal stimulus and monetary stimulus," said Kristina Hooper, chief global markets strategist at Invesco in New York. "It could be positive for materials."
The People's Bank of China has reduced the reserve requirement ratio of banks five times over the past year and is expected to broaden its policy flexibly to boost lending and reduce borrowing costs. The stimulus seems to have boosted Chinese economic data, as the activity of factories rose in March for the first time in four months.
However, so far in 2019, the S & P 500 Materials Index has underperformed the S & P 500 Index, rising only 11.9%, compared to 16.7% for the benchmark. . In addition, it is one of the biggest bearers of the period since the previous S & P close of September 20th. The materials index fell 7% in these seven months, compared to 5.2% for technology and 3% for industrials. Only the energy index decreased further during this period.
A trade agreement could serve as a catalyst for rising inventories of raw materials while slowing the Chinese economy, say some market strategists. Some commodity prices, including those for copper and oil, have risen this year as the outlook for the global economy has improved somewhat.
"This all goes back to global growth prospects," said Andrea DiCenso, Portfolio Manager for Alpha Strategies at Loomis Sayles in Boston. "With the front run in tough data, we are starting to witness a pretty significant rally."
In addition, a trade deal should include commitments by China to acquire larger amounts of US products such as soybeans, which could benefit companies that produce agricultural chemicals, including DowDuPont Inc and CF Industries Holdings. Inc.
CF Industries is scheduled to release its quarterly results after Wednesday's bell and DowDuPont before the market opens Thursday.
True, even with a trade deal, some materials companies might face price pressures. Shares of Freeport-McMoRan Inc. fell 10.1 percent on Thursday after the copper mining company reported lower-than-expected earnings as production fell and costs rose.
Gene Goldman, director of investments at Cetera Investment Management in El Segundo, Calif., Said that a dismantling of tariffs on Chinese imports, particularly aluminum and steel, would likely result a decline in the price of some commodities.
Nevertheless, these disadvantages can be offset by the support for global demand created by a trade agreement between the United States and China.
"You can see a number of companies with reduced expectations straightening them out because they are talking favorably about the impact that a trade deal might have on them," said Tim Ghriskey, chief investment strategist at Inverness Counsel. At New York. (Report by April Joyner, additional report by Sinéad Carew, edited by Jonathan Oatis)
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