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Markets on Rewind? Phase 1 Is a Movie Wall Street Has Seen Before

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Investors don't seem to fully believe in the overall positive trade developments that have unfolded in the past few days.

Monday, President Trump said he expects a "substantial" trade deal between the U.S. and China to get done soon. This comes after the two sides agreed on a partial trade truce of sorts Friday. Both sides have said they have a "fundamental understanding on the key issues." But China said that while the two side have inched closer to an agreement, the U.S "should avoid backpeddling," a shift in tone China has seen far too many times in the past. 

Meanwhile, no agreement, partial or full, is signed. Positively, October 15 tariffs on Chinese goods coming into the U.S. have been taken off. This would have moved 25% tariffs on $250 billion worth of goods up to 30%. But tariffs set to go into effect in December are still currently, in place. 

After having fallen as much as 0.26%, the S&P 500 turned positive by 0.05%. All three major U.S. indices were down to start Monday, before settling mixed by mid morning. 

While some may expect stocks to drift gently higher, especially with interest rates so low, Monday's early trading action may once again indicate the market's dissatisfaction with all the uncertainty. Recently, poor economic results relating to manufacturing activity and jobs numbers have been a function of that uncertainty. Businesses are investing less, and therefore hiring less, because they have no clarity on the direction of tariffs and therefore demand. Investors are aware of this dynamic and may be hesitant to buy. 

"If we look at a business where they're going to set up this new manufacturing plant, the idea that there are these tariffs that could come out of nowhere makes it really hard to plan," Michael Reynolds, investment strategy officer at Glenmede. "If you have an uncertain outlook, people, regardless of what industry they're in, they get a little bit cautious." 

Perhaps the biggest kicker of all: Glenmede won't get "more constructive" on stocks until trade talks become more substantive. 

Meanwhile, the 10 year treasury was little changed at at 1.732%. Many times when investors are unsatisfied with the direction of trade talks, the yield falls, as the perceived chance of another interest rate cut rises. But for now, hopes of another rate cut may cause longer-dated treasury yields to rise, many on Wall Street have said, as lower short term rates would stimulate economic growth and inflation

This dynamic could lift profits for banks stocks, a group soon to report a crucial slate of earnings reports

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