Stocks were higher but meandering Friday, after gaining sharply during the week. The S&P 500 was up about 4 percent for the week so far but up just 0.5 percent in afternoon trading. Analysts say the outcome is difficult to predict, and Trump's comments have not made it very clear.
Reuters quoted a Chinese official in Buenos Aires Friday, saying that "consensus is steadily increasing" in trade discussions, but differences remain.
According to Strategas, odds for a deal that includes a ceasefire on further tariffs were about 30 percent. The firm sees even lower odds, 20 percent, for a deal that would include a ceasefire and a roll back in tariffs. They note that China has been considering rolling back tariffs to be more consistent with those in developed countries.
"The medium [outcome] is we don't add to tariffs and we don't have the tariffs kick in in 2019. We decide to talk and delay. That's neutral to positive for stocks, and very positive for stocks would be yes, we are talking and we're making headway," said Stovall. Even better would be if there are some roll backs. "Then we get a Powell speech kind of response in the market...You see an explosion to the upside."
Analysts said the stocks that would do best would be those that have been hurt by tariffs — companies that have a relatively high portion of revenue from China or rely on China for parts or manufacturing. That would include industrial and technology companies.
In that scenario, Treasury yields could rise and the dollar, which has been rising on trade tensions, would likely weaken against emerging market and other currencies. The Chinese yuan, down 6.7 percent this year, could strengthen.
An agreement could prompt a flood of money back into the market on Monday, "a dramatic rally," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "Maybe sterling lags because of Brexit, and maybe the yen lags too because if you buy the emerging markets, you use yen as a funding currency," he said. "The dollar sells off in general, just on a positive surprise."
But analysts said it's difficult to handicap what will come of the dinner meeting, during which the two leaders are supposedly making the decision on how to proceed.
As Trump left for the G-20 summit meeting in Buenos Aires on Thursday, he said the two sides were "very close" but added that he wasn't sure he wanted to do a deal. Trump trade adviser Peter Navarro, a China hawk, will also be in attendance, which was taken as a negative by the market.
"I think they're going to kick the can down the road for a couple of weeks," said Chandler.
A deal could be open-ended, with details on future tariffs left to meetings between negotiators. "That's going to be anticlimactic," Chandler said. "That's going to be hard to trade."