Experts are already preparing for what might follow the US China trade truce

The trade war between the US and China has been full of surprises and reversals, but late Friday the two sides reached a “truce” that was widely expected.

US President Donald Trump and Chinese President Xi Jinping are giving their teams more time to negotiate. The tariffs they’ve announced over the year remain in place, but the additional duties that they have threatened are being postponed.

Here’s how some strategists said they were thinking about this scenario and what it will mean.

‘Prolonged truce’

Mark Haefele, global chief investment officer for UBS’s global wealth management business, said he would keep a positive outlook on stocks for now. He said US stocks could rise as much as 5% in the next six months and shouldn’t go much lower, while over the same time frame, Chinese stocks will trade in a range of down 5% to 10% up.

“We think the most likely outcome of the meeting will be a prolonged truce,” he said. “We remain overweight equities, with a regionally selective approach. But given the risks, we also recommend counter-cyclical positions.”

The battle isn’t over

Ed Campbell, portfolio manager at PGIM’s QMA quantitative stock business, said the combination of a truce, more economic stimulus from China, and potential rate cuts from the Federal Reserve and European Central bank, would be good for risk assets.

But he thinks there is a much broader dispute brewing.

“US-China relations have permanently diverged and should be viewed in the context of a geopolitical competition that is unlikely to be resolved by a trade deal,” he said. “The current tensions are likely to persist for some time.”

Going up

“(This) outcome could lend additional support to the current rebound in stock prices, and likely push bond yields somewhat higher,” said David Joy, chief market strategist for Ameriprise.

Obstacles ahead

John Vail, the chief global strategist at Nikko Asset Management, said he still thinks the US will put new tariffs on Chinese exports in the fourth quarter of this year as the current talks run aground.

“The two sides’ red lines are quite stark and may prevent any progress made at future talks,” he said. “Furthermore, both sides may feel that they have the upper hand.”

Mostly downside risk

Paul Eitelman, senior investment strategist for Russell Investments, said he’s mostly preparing for negative reactions on the trade front. That’s because the risks to stocks are great, and the possibility of a deal won’t give the market that much of a lift by comparison.

“This is the dilemma we’re faced with at mid-year. A positive central scenario but with asymmetric risks to the downside.

Deal difficulties

The BlackRock Investment Institute’s position is that tensions will outlast the current trade war.

“A deal later this year is possible but would face significant challenges in implementation and enforcement — and we see structural tensions persisting,” according to its latest research.