What happened

Shares of Macy's (NYSE:M) moved higher today in an apparent response to a thaw in trade tensions with China as the U.S. and China have taken a step toward rolling back tariffs on each other, as part of an agreement that's being referred to as "phase one" of the negotiations. 

There was no company-specific news out on Macy's, but that development was enough to push up shares of the broader retail sector, as the SPDR S&P Retail ETF rose 1.2% and Macy's closed up 5.4%.

The outside of Macy's flagship store in New York City.

Image source: Macy's.

So what

Macy's has been one of the worst performers on the S&P 500 this year with the stock down 44% year to date, so it has a lot to gain from a shift in the macroeconomic winds. The department store chain is also one of the cheapest retailers on the market, trading at a price-to-earnings ratio of just six based on this year's expected earnings, so a minor improvement in the forecast could give a significant lift to the stock.

Like other retailers, Macy's is under pressure from tariffs imposed on China, as that country is a significant source of products sold in Macy's, including apparel, home goods, and accessories. The department store chain cited tariffs on China as a risk factor in its annual report, saying, "These changes could negatively impact our business and results of operations if they seriously disrupt the movement of products through our supply chain or increase their cost." 

In its earnings call in August, management commented on a possible new round of tariffs, saying, "We know from the earlier tranche of tariffs, though, that today's customer doesn't have much appetite for price increases," a sign the retailer might end up getting squeezed on the cost side.

According to the Financial Times, the Trump administration is considering rolling back tariffs on $112 billion worth of China's goods, including items like clothing and appliances, making Macy's a potential winner in the negotiations.

Now what

The retailer is set to report third-quarter earnings later this month, and with the trade situation in flux and the holiday shopping season just around the corner, there are a number of potential catalysts that could give this beaten-down stock a boost. Analysts are expecting revenue to fall 1.1% to $5.34 billion, and for earnings per share to shrink from $0.27 to just $0.01. Macy's hasn't yet announced its earnings date, but the results and its fourth-quarter guidance are likely to prompt a big swing one way or the other.