Some institutional investors may be taking a more cautious approach despite renewed hopes for a reduction in trade tensions between the U.S. and China, analysts at Jefferies said.
In a note to clients, the team of analysts led by Shujin Chen stressed that confusion still persists, particularly over the level of U.S. tariffs on China following the announcement of a trade deal between the two countries on Monday.
Washington has agreed to reduce high tariffs on Beijing to 30%, after tariffs were raised to at least 145% by President Donald Trump. China, in turn, has said it will reduce its retaliatory tariffs to 10% from 125%. The two countries have also agreed to suspend these tariffs for 90 days.
More trade talks are expected to take place, including technical discussions on relevant economic and trade issues.
It is worth noting, analysts said, that the U.S. tariffs now includes a 10% base levy along with an additional 20% duty imposed on China over its alleged involvement in the trafficking of the illegal drug fentanyl.
However, other estimates that also take into account additional duties during Trump's first term, which cover about two-thirds of imports from China and still have an average tariff rate of between 40% and 50%.
A more accurate estimate, they say, is around "49.5%", citing data from the US-based Peterson Institute for International Economics.
Jefferies analysts now expect a "near-term market bounce" driven by reduced pessimistic sentiment on US-China trade relations, higher earnings forecasts for export-oriented companies, and increased investor confidence in China.
However, they warned that institutional investors are now "increasingly cautious" as the market focuses more on changing policy expectations than the financial fundamentals that determine stock valuations.
Stock market futures were trending lower on Tuesday after a big surge on Wall Street in the previous session.
