One of the stock market’s worst fears has been a trade war, yet U.S. large cap stocks have tagged on nearly 3 percent inside the several sessions just before along with also after Friday’s trade actions, where the U.S. along with also China each slapped tariffs on $34 billion in each some other’s goods.
“I think there’s still This kind of belief of which there will be some resolution to This kind of at the end of the day,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “I think people are hopeful both sides are throwing tariffs out there, yet of which won’t escalate further along with also of which the dollar amounts aren’t huge.”
Markets have been watching the simmering trade war between the U.S. along with also China, which heated up in March when President Donald Trump announced he would likely put tariffs on $50 billion in Chinese goods, along with also stocks have traded in a choppy range since then. The tariffs of which went into place Friday are the first step toward of which $50 billion, with the rest expected in August. yet the question is actually whether the trade dispute escalates beyond of which since Trump has threatened to carry through with tariffs, on up to $500 billion of Chinese goods.
“Clearly there will be more headlines regarding trade. Some of them will be what we hear through corporations inside the earnings season. The guidance inside the earnings season is actually very important. Are we seeing companies put on hold any plans for hiring along with also expenditures?” said Quincy Krosby, chief market strategist at Prudential Financial.
The S&P 500 Tuesday briefly reached 2,795, its highest level since mid-March. Krosby said the key for markets will be at what point officials begin to negotiate about trade issues. “What you’re going to see is actually the market navigating through these headlines of which are not specific. Clearly, there is actually a trade overhang inside the market, of which hovers above everything else,” she said. “is actually This kind of just the strident headlines forcing negotiations? Clearly, there will be negotiations, yet what the market doesn’t know is actually at what point.”
JP Morgan strategists say they believe the stock market has already priced in a negative trade impact, yet they expect stocks to remain supported by strong fundamentals. “In our view, even draconian measures should not greatly offset already strong US corporate fundamentals,” they wrote in a note. They said trade concerns could cause more volatility yet they point to strong earnings growth, expected at 22 percent This kind of year, along with also the tailwinds through tax cuts along with also fiscal spending.
Strategists say the market has also shifted its focus to second quarter earnings, which should be a positive along with also are supposed to be up 21 percent, according to Thomson Reuters. yet the earnings reports are also key in of which they may include the next clues about whether trade is actually going to be a negative for the market or not.
The latest leg higher for stocks also coincided with Friday’s jobs report, which showed strong job growth of 213,000. James Paulsen, chief investment strategist at Leuthold Group said there was a similar move in June around the strong May jobs report.
“For the jobs report, what of which’s telling me is actually the bigger issue is actually still overheat along with also the Fed. of which’s definitely the big issue along with also trade is actually tiny in relation to of which,” said Paulsen. “The thing is actually you don’t get a read on the Fed all of which often, as opposed to an everyday tweet by Trump. You kind of come back to where we are on those bigger issues. We just got This kind of heartwarming [employment] report across several different spectrums of which feel like Goldilocks.”
Intertwined with the worries about trade along with also its potential impact on the global economy are doubts about whether the Fed can proceed with the two interest rate hikes of which still forecasts with This kind of year.
“of which is actually going to be something analysts want to know. is actually the Fed going to perhaps pause maybe, with the fourth rate hike everybody expects?” Krosby said. She said the market is actually looking for more specifics on trade with the European Union, the ongoing discussion on the North American Free Trade Agreement along with also further developments on China.
Traders have been hiding out in tiny caps, which they see has having less exposure to international trade disputes. The Russell 2000 hit an all-time high of 1,708 Tuesday before backing down.
JP Morgan strategists said an escalating trade war could bite into margins along with also Chinese tariffs could affect about 4 percent of S&P 1500 sales, generated in China.
“However, the real earnings impact will ultimately be determined by industry dynamics. Companies with lower pricing power will need to absorb a greater share of the tariff relative to end users. The pickup in trade rhetoric should be more detrimental for lower margin importers of consumer goods,” they wrote. They noted of which retail, autos, household products along with also appliances could be impacted more than higher margin exporters, like cell phones, semiconductors along with also medical equipment.
“Most insulated through trade headlines should be companies with high domestic revenue exposure with limited goods sourced through abroad (i.e., Utilities, REITs, Telecom, along with also Restaurants have low direct/indirect trade exposure),” they wrote. Utilities, for instance, have been up 7.8 percent over the past month, followed by consumer staples, up 3.9 percent. Industrials, most exposed to trade wars, have lost 3.3 percent inside the past month.
The current tariffs amount to a hit of less than 0.1 percent of U.S. GDP along with also less than 0.2 percent for China. An escalation, including threatened U.S. tariffs on auto imports, could cut global growth by a half percent, they said.
Stocks got a lift Monday after there were no fresh trade barbs over the weekend. The rally carried through into Tuesday, with the S&P 500 bucking up against a key technical level inside the 2,792 area, with the 2,800 psychological level also looming. Tuesday’s highs were the highest since March 13. The S&P closed at 2,793.
“Hitting resistance isn’t bearish. of which’s just the market came a long way inside the last two weeks. A pause here would likely make sense,” said Scott Redler, partner with T3Live.com. “Whenever the trade front is actually quiet, the market rallies.” Redler said if there was news of of which negotiations were beginning again, stocks would likely surge along with also 2,850 would likely be in sight quickly.
“Of course, of which could escalate into a horrible thing, yet I think the odds are very tiny of of which happening. The more likely outcome of the two I think, I would likely pick by far over a massive all out trade war would likely be an agreement to lower tariffs,” said Paulsen.