New York
UJ Business
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The stock market seems optimistic about the recently signed trade agreement between the US, Canada, and Mexico.
Stocks surged after all three nations came together to finalize a last-minute deal to supersede NAFTA.
The Dow gained 193 points, a rise of 0.7%. The S&P 500 increased by 0.4%, while the Nasdaq dipped by 0.1%.
The revised trade agreement, unveiled late Sunday, comes after Canada consented to provide US dairy farmers enhanced access to its market.
Additionally, the United States agreed to relax certain auto tariffs on vehicles manufactured in Canada and Mexico as part of this agreement, which replaces NAFTA and will be referred to as the United States-Mexico-Canada Agreement (USMCA).
Shares in leading automakers saw a surge following this news, with GM climbing 1.6%, Ford rising 0.8%, and Fiat Chrysler increasing by 2.7%.
However, some market analysts cautioned that investors might be overreacting to the USMCA deal, as the United States is still embroiled in another significant trade conflict.
“While the U.S. has reached a new trade agreement with Mexico and Canada, escalating trade tensions with China pose a risk to economic growth in both nations,” remarked David Kelly, chief global strategist at JPMorgan Funds, in a report released on Monday.
Eric Winograd, senior economist at AB, also believes that tensions between the US and China are unlikely to be resolved quickly.
“The US relationship with China is far more complex than its relationship with Canada. The stakes are considerably higher when it comes to China, as it holds leverage over the US that Canada simply does not,” Winograd stated, referencing China’s ownership of US Treasury debt and its larger market for US exports.
“I wouldn’t discount the possibility of reaching an agreement with China, but I don’t believe the US-Mexico-Canada Agreement serves as a useful framework for negotiating with the Chinese,” Winograd continued.
Some experts, however, argue that a US-China settlement is unavoidable, which makes the market’s response to the USMCA deal entirely rational.
“Many investors are hopeful for a market-friendly compromise following the US midterm elections in early November, as the Chinese may have a reason to negotiate to prevent the 25% tariff on $200 billion of Chinese goods that begins on January 1, 2019,” noted Alec Young, managing director of global markets research for FTSE Russell, in a report.
The trade deal isn’t the only factor influencing market movements.
The unexpected dismissal of General Electric CEO John Flannery and a settlement between Tesla and the SEC are also significantly impacting the markets.
Shares of GE soared by 7% following the announcement that Flannery, who had become CEO in August 2017, would be succeeded by Larry Culp, a former leader of industrial conglomerate Danaher.
Culp, who joined GE’s board in April, faces a formidable challenge to redirect GE’s trajectory. The company also announced on Monday that it would incur a charge related to its struggling GE Power division. Prior to Monday’s surge, the stock had experienced a 35% drop this year.
GE’s market capitalization fell below $100 billion last week for the first time in over nine years. The company was also removed from the Dow Jones Industrial Average in June, ending a tenure of more than a century on the prestigious index.
Meanwhile, Tesla’s shares experienced a rally on Monday following the news of its settlement with the Securities and Exchange Commission, which stipulates that Elon Musk will resign as chairman but remain as CEO.
Tesla’s stock surged by 17%. The shares had plummeted by 14% on Friday after the SEC filed a lawsuit against Musk, accusing him of making “false and misleading statements” over the summer regarding tweets stating he had “funding secured” for a potential buyout of Tesla.
As part of the agreement with the SEC, Musk did not admit to any misconduct. The company also agreed to pay a $20 million penalty.
