Market participants have been anticipating a deal on China trade not just for months but for years. Yesterday, it was finally announced that the U.S. has agreed to suspend some tariffs on Chinese goods in exchange for China's promise to buy more U.S. agricultural goods.
There has been no formal statement from Beijing yet, but markets around the world are trading sharply higher as President Trump is expected to announce a deal on Friday.
While this is only phase one of a deal with China and doesn't seem to totally resolve the tariff issue, it is being hailed a sign that progress on trade can be made.
In addition to the trade issue, there was news last night that Boris Johnson prevailed in the UK, which should pave the way for an orderly Brexit, and there was also an agreement in Congress on a budget that should help to avoid a government shutdown.
The indices are set to open at all-time highs and the bulls believe that this short-term resolution of the China trade issue will clear the way for market upside to end the year.
The bearish scenario is that this trade deal has been so well anticipated that there is not likely to be much new buying and that those that have enjoyed the recent run-up will be inclined to lock in some profits.
While the "sell the news" response seems logical, there are two issues that undercut the argument. The first is that in this age of endless central bank liquidity, the bulls never seem to be fully invested. There is always capital for more buying. A "sell the news" reaction only works if there isn't much capital left for additional buying.
The second issue is that with only a few weeks left in the year, many fund managers are already lagging their benchmark indices and need some relative performance. The only way they can do that is to try to buy some stocks that will outperform. Raising cash and sitting on the sidelines is not what active managers are likely to do.
While the indices are set to open higher, there is consternation over the silence out of Beijing. There has been no confirmation of a deal and some Chinese officials have made critical comments about the U.S.
The action today will be key. If the news does not produce sustained momentum, then the efforts to protect gains will accelerate quickly. The market has lived off the promise of a China deal for a very long time and now the question is whether this is as good as it gets.