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Davos 2020: Trump's phase one trade deal with China leaves one major question unanswered

Brian Sozzi
Editor-at-Large

Corporate titans will descend on this year’s World Economic Forum in Davos in search of an answer to a question that has been burning for close to two years.

That is, now that a phase one trade deal between the Trump administration and China is in the books, has enough uncertainty lifted on trade to plow ahead with outsized spending on capital equipment and hiring. Given that investors have watched the stock market go up in a straight line over the past year on expectations of economic conditions improving around the world under a phase one deal, uncertainty has to be lifted in Corporate America’s boardrooms or else.

Remember it’s the corporate hiring and capex spending that serve as the grease to economies and profits, not low or negative interest rates from central banks. If investment plans continue to be held back, investors will have to decide whether current valuations on stocks are warranted under a more muted profit outlook.

The logo of the World Economy Forum is displayed on a door at the Congress Centre in Davos, Switzerland, Sunday, Jan. 19, 2020. The 50th annual meeting of the World Economic Forum will take place in Davos from Jan. 20 until Jan. 24, 2020. (AP Photo/Markus Schreiber)

Indeed many business moguls are likely to leave the swank thought leadership event in Switzerland absent that definitive answer. Ditto investors. In fact, more questions on the global growth outlook may be raised following President Trump’s highly publicized speech at the World Economic Forum on Tuesday.

Pessimism takes center stage

Global uncertainty continues to persist, World Economic Forum President Borge Brende told Yahoo Finance in an interview on the ground at the gathering. Brende said world leaders remain concerned about the U.S. and China — two of the most powerful economies in the world — de-coupling further from one another on various polices. Should that de-coupling extend even more, it could put global growth at severe risk in the future amid increasing evidence of climate change and the push to digitize supply chains.

“U.S. and China represent almost 50% of the global GDP, so it does matter these two countries see eye to eye [on trade]. I think there is a lot of interest in what the next steps will be,” Brende explained.

Without question, the pessimism by corporations on 2020 has taken stage at this year’s World Economic Forum. At the very least, the worries on growth by business leaders should get investors thinking on whether to sell stocks at currently inflated valuations.

Of the 750 business leaders surveyed in the WEF’s annual Global Risk Report, 78% said they expect “economic confrontations” and “domestic political polarization” to rise in 2020. The report forecasts a year of increased domestic and international divisions leading to an economic slowdown.

Watch Yahoo Finance’s full live network coverage of the 50th Annual World Economic Forum from January 21-24 here.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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