The U.S.- China trade war's impact on the U.S. and global economies continues to be found in data related to confidence rather than to costs and prices. In any event, the recently stock hot market trades quite a bit on tariff news, creating some risk for investors.

Certainly, trade volumes have decreased in many periods since the U.S. initiated its trade spat with China in March 2018. But the latest economic developments paint a modestly positive picture, at least for now.

China's export volumes in October fell 0.9% year-over-year to $212.93 billion. That result was far better than the expected 3.9% decline. The result indicates that global demand for goods isn't waning as much as many observers feared. Of course, both the economist and the investor must decipher whether this is a blip on the radar or a trend for the future.

Two questions remain:

In which other ways is the trade war hurting economic growth? And how does this factor into stocks?

Real Impact of Trade War

U.S. companies continue to work through so much uncertainty that they're investing much less than they would otherwise.

"The ongoing trade war between the U.S. and China was the key driver of uncertainty for manufacturers," wrote a team of investment strategists at Citizens Bank.

UBS's chief investment officer of global wealth management, Mark Haefele, wrote in a Thursday note, "It remains unclear whether the terms of any phase one deal [between the U.S. and China] would be sufficiently trusted to drive a rebound in corporate investment and bring growth back to trend."

U.S. companies hesitate to ramp up capital expenditures, since the unpredictable nature of the trade war blocks executives' vision of demand for goods and services.

U.S. companies usually must choose between absorbing the added costs of tariffs, which dents profit margins, or raising prices to protect margins, which comes at the cost of demand. Companies respond to the uncertainty by holding back investment.

"Companies will likely remain cautious until there is more clarity on a trade agreement," Tony Bedikian, head of global markets at Citizens Bank, told TheStreet.

This has already showed up in recent economic data. Manufacturing activity in the U.S., as measured by the Institute for Supply Chain Management, contracted year-over-year for August and September, with readings of below 50.

Citizens Bank's recent Citizens Business Conditions Index for the third quarter dropped to a reading of 60.2 from 61.2. The index measures business conditions broadly, using publicly available data from the main economic surveys as well as proprietary research.

What to Expect Going Forward

Let's start with why stocks were higher Friday and the past month, even as uncertainty remains a strong theme on the trade front.

The S&P 500 spent most of Friday marginally lower, but rose 0.07% by 3:25. "The markets are pricing in a positive outcome ultimately, with China-U.S. trade agreements," Bedikian said.

In the past month, the index has risen 5.12%. This has been driven partly by what President Donald Trump has called a potential phase one of a trade deal between the U.S. and China.

But Trump said Friday that the U.S. has not agreed to roll back any tariffs at all to at this point, which further highlights how optimistic stock investors have been.

Stocks have obviously traded very much on tariff developments since Mach 2018, making the market vulnerable to speculative upswings. Meanwhile, the average forward one-year price-to-earnings multiple on the index of above 17 is "fairly valued" at best to many on Wall Street. The S&P is up 23% year-to-date. 

Lower interest rates provide a floor or support level to the economy and stock prices, many say, and the Federal Reserve is more compelled to cut rates when trade-war developments dent economic data.

Currently, there's a just 5.2% chance of a rate cut in March 2020, according to data from CME Group. But that's partly because that date is not in focus yet and the probability could easily spike, some on Wall Street say