What happened
Shares of The Michaels Companies (MIK +0.00%) rose as much as 14.5% on Thursday morning, driven by the Trump administration planning to meet with Chinese leaders for a new round of trade talks. By noon EDT, the arts and crafts retailer's stock had settled down to a 13.7% gain.
So what
Michaels' shares spiked as much as 27% higher on Wednesday thanks to a strong earnings report then lost most of that sizzle when the company's management used the earnings call to state that the upcoming batch of tariff increases in December would prove costly. If executed according to current plans, the so-called List 4 of tariffs on imports from China could add as much as $500 million to Michaels' cost of goods sold in 2020. That would be enough to swing from positive to negative earnings. Investors were spooked by this detailed revelation and took most of Wednesday's early gains off the table in a hurry.
Today, the Trump administration is preparing to sit down with Chinese officials for another round of trade deal negotiations. The session is slated for early October, with the potential to block those harmful December tariffs from taking effect.
Image source: Getty Images.
Now what
Government spokespeople are looking for "meaningful progress" in October's trade talks, and Michaels investors would welcome a tariff-free future with open arms. Mitigating actions such as finding alternative suppliers outside China or negotiating lower prices from Chinese vendors can only do so much to stem the tide of rising costs, after all.
So it makes sense to see the stock recovering some of the gains that were lost to trade tensions on Wednesday, even if there are no guarantees that the two governments will reach a tariff-free deal in October. Baby steps can make a significant difference, too.
