By Amrith Ramkumar 

Investors are anxiously waiting to see whether a new round of tariffs on Chinese consumer goods takes effect next week, one of the few remaining hurdles for the stock market in 2019.

Despite fears that trade uncertainty would continue denting the world economy, activity picked up in the global manufacturing and services sectors last month, J.P. Morgan purchasing managers' indexes show. Central banks have slashed borrowing costs to support growth, and few analysts project a rise in inflation that would challenge consumers.

In the U.S., employers continue to hire at a steady pace, bucking expectations that tariffs would cause a sharp slowdown in the labor market. American consumers, who account for more than two-thirds of economic output, have also shown few signs of limiting spending, making the proposed duties that would take effect Sunday a rare source of angst for investors.

Many analysts had assumed that tariffs on more imports from China, ranging from smartphones to clothing, would be off the table after the U.S. and China reached a tentative truce in mid-October. But President Trump's comment early last week that he is willing to wait until after next year's presidential election to strike a limited trade deal raised the specter of a new challenge to the U.S. economy.

"Consumers have been the pillar," said Nela Richardson, an investment strategist at Edward Jones, which favors cheaper international stocks over shares of large U.S. companies. "We still think there's enough gas in the tank based on consumer spending and really accommodative central banks to keep the economy and the bull market running."

In the latest sign of the market's resilience, the S&P 500 shook off drops from early last week that were driven by trade angst to close the week slightly higher. Even with a modest decline Monday, the broad equity gauge is up 25% for the year, and 0.6% below the record it hit just before Thanksgiving. Other riskier parts of the market such as global stocks and growth-sensitive commodities also have rallied.

The price of copper, an industrial metal critical to construction and manufacturing, has advanced in four consecutive sessions and closed Monday at its highest level in nearly seven months.

Soothing comments from trade officials convinced some analysts that Mr. Trump's remarks were a negotiating tactic, and upbeat November hiring data released Friday were the latest sign of stability in the U.S. labor market. Employers added more jobs than economists expected, wages rose more than anticipated from a year earlier, and the unemployment rate fell to match a 50-year low, the figures showed.

Consistent hiring and steady consumer activity have offset tepid business investment, fueling hopes that clarity on trade policy will remove one of the few remaining snags in the economic outlook.

"The absolute performance of the U.S. economy is still quite robust," Marriott International Inc. Chief Executive Arne Sorenson said on the company's third-quarter earnings call on Nov. 5. Shares of the hotel operator are up 30% this year.

Investors this week will be monitoring the Federal Reserve's final statement of 2019 and November's retail-sales figures to gauge momentum in the economy. Some analysts hope the Fed's three interest-rate cuts earlier in the year will help keep growth on stable footing even if the tariffs on consumer goods take effect.

Still, traders caution that another sudden reversal in rhetoric could quickly drag down markets following a stretch of muted volatility and recent gains for trade-sensitive stocks such as heavy machinery maker Caterpillar Inc. and semiconductor company Microchip Technology Inc.

Similar market pullbacks occurred following trade setbacks in May and August, underscoring how sentiment about the trade war continues to guide major indexes.

"Just as easily as markets sell off on one headline and one tweet, they can turn around 10 minutes later," said Shawn Cruz, manager of trader strategy at TD Ameritrade. "It's going to drive what investors are going to be doing."

One factor making some investors think the U.S. economy isn't out of the woods yet: weak business spending. Caution from companies is one of the most pronounced effects of trade uncertainty and has hindered a robust source of economic growth. Nonresidential fixed investment -- which reflects business spending on software, research and development, equipment and structures -- fell at a 2.7% annual rate in the third quarter.

Even though the world economy has shown some signs of stabilizing, trade anxiety has created doubts about an acceleration in global growth in 2020.

"What our models are based on are historical figures that don't include the uncertainty around the trade war," said Mona Mahajan, U.S. investment strategist at Allianz Global Investors. "It's been hard to handicap."

Ms. Mahajan still holds a larger position in stocks than the benchmark she tracks, believing that improving global growth will boost more cyclical areas of the market like financial and industrial stocks.

If the new tariffs start hurting consumers, though, some investors are wary of another uptick in recession fears.

"The domino effect is scary," said Keith Buchanan, a portfolio manager at GLOBALT Investments. Mr. Buchanan said the firm has recently increased its investment in gold because the precious metal tends to hold its value when appetite for riskier options wanes. Prices of gold have dropped nearly 6% below their six-year peaks from early September.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

December 09, 2019 16:33 ET (21:33 GMT)

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