Too Much At Once
While the market may have gotten used to trade bluster, that doesn’t mean it’s immune to it. With the Fed raising rates, the margin of safety for investors shrinks.
“The ‘unforced error’ of a trade war along with EM stress would likely lead to a deceleration in global growth that would slow the pace of Fed rate hikes, but for the wrong reasons,” Dennis DeBusschere, head of portfolio strategy at Evercore ISI. “In that scenario, earnings estimates would come under pressure, cyclicals would continue to lag and money would move from stocks to bonds or cash (happening today). As of late last week, investors remain evenly split on trade tensions putting the odds of a U.S./China trade war at 54%. Increased odds of a negative outcome on trade would strengthen the outperformance of Defensives and encourage a rotation out of stocks and into bonds/cash.”
Other Voices
John Stoltzfus, chief investment strategist at Oppenheimer: “Looks to us like most of the declines today are tied to tariff concerns. What had been a collective thought in the market that the trade skirmish would remain bluster and rhetoric has become a thought that a trade skirmish could ensue and stick for some yet unknown period of time.”
Barry Bannister, chief equity strategist at Stifel Nicolaus: “The S&P 500 began to roll over in mid-June when it was just over one multiple point over-valued. Although EPS should fully offset P/E compression this year, investors had to look to full-year earnings to justify a price close to 2,800.”
This article was provided by Bloomberg News.