Key Points

China and the U.S. lowered their high tariffs and are working on a permanent trade deal. RH investors are hoping consumers will continue spending and the economy won't end up slowing down because of tariffs. Even with the latest ratcheting down on tariffs, there is still a lot of economic uncertainty. 10 stocks we like better than RH ›

Shares of luxury home furnishings retailer RH(NYSE: RH) spiked today after the Trump administration said that it's working out a trade deal with China. The two countries have been locked in a trade war, and investors have been worried that retailers like RH will suffer if the economy slows down and consumers pull back on their spending.

With both countries cutting their tariffs as they work out a permanent deal, some retail stocks are on the rise today, with RH skyrocketing 17.9% as of 12:04 p.m. ET.Image source: Getty Images.

Investors are happy to see the trade war cool down

There has been significant concern among investors that the escalating trade war between China and the U.S. would do significant damage to the economy and cause consumer spending to slow down. The U.S. formerly had tariffs as high as 145% on China, but has lowered them to 30% over the next 90 days as a permanent deal gets worked out.

RH shifted some of its manufacturing out of China to Vietnam after some tariffs were imposed on China during the first Trump administration, but still sources some of its products from the country. RH has previously been optimistic about Trump's ability to negotiate better trade deals with countries, saying last month that tariffs could "improve and balance trade conditions around the world."

But investors have been concerned that if the high tariffs on China remained in place, it could hurt RH's business. J.P. Morgan raised its odds of a recession to 60% last month in light of tariff announcements, but investors are hoping the latest trade deal news will reverse that potential course.

There are still a lot of unknowns

It's understandable that RH investors would respond positively to the latest tariff news. But it's important to remember that a permanent deal hasn't been finalized between China and the U.S., and there are still many trade deals yet to be made with other countries.

The Trump administration has already shown that it's willing to break economic norms, which means that even when trade deals are announced, some companies and consumers may still not trust that the uncertainty is over. The result could be a cautious consumer regardless of lower tariffs.

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All this means RH investors should continue to watch for any changing tariff news, and also for any indicators that consumers are tightening their belts.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

Why RH Stock Rocketed Higher Today was originally published by The Motley Fool

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