What happened
Shares of Ralph Lauren (RL -1.02%) were climbing today after news broke that the U.S. and China were set to reach at least a partial agreement in their trade talks. This boosted stocks broadly, especially the retail sector, which has been highly sensitive to the trade spat.
As of 2:34 p.m. EDT, the S&P 500 was up 1.7%, while the SPDR S&P Retail ETF (XRT -0.44%), a barometer of the retail industry, had gained 2.8%. Ralph Lauren stock was trading 4.9% higher.
Image source: Ralph Lauren.
So what
According to early reports, the two sides had agreed to hit the pause button on any further retaliatory tariffs after both the U.S. and China had announced new import taxes on one another in recent months. The agreement also paves the way for a more comprehensive deal between the world's two economic superpowers, as President Trump is set to meet with Chinese Vice Premier Liu He this afternoon, which could yield a further breakthrough.
For the moment, it seems that retailers that were in fear of rising tariffs ahead of the all-important holiday season can breathe a sigh of relief.
Like many of its peers, Ralph Lauren is highly dependent on Chinese manufacturing. The company sources approximately one-third of its product from China and cited tariffs on China as a risk factor in its annual report.
In its recent earnings call, management said it had accelerated imports from China ahead of potential tariffs -- a sign that the company is sensitive to the import taxes -- and is managing its business around it.
Now what
News about a detente in the trade war isn't just beneficial for Ralph Lauren because it removes the threat of increased tariffs -- it should also help give consumers confidence heading into the holiday season. Prices will be lower, businesses will be more bullish and willing to invest, and the stocks will go up as investors stay attuned to developments in trade negotiations.
Given that environment, it's not surprising to see Ralph Lauren stock trading higher on today's news.
