While trade tensions have escalated, stock investors have ignored comments from President Trump and threats of retaliation by China, but this seems to be changing. The current level of escalation has come in September, a month that historically has been a tough month for stocks – hence more concerns about a stock reversal and pullback. However, some bank analysts are now claiming that it is a full-blown trade war. One strategist, David Kostin is saying that markets could turn into a bear market under a scenario where the US imposed 10 percent tariffs on all imports. According to an article on Bloomberg news, the UBS Group AG strategist has also alerted investors with regards to President Trump`s tariffs. The stocks resilience is under threat according to this strategist.
According to this piece, Goldman`s Kostin painted a picture that says a 25 percent tariff on Chinese goods could wipe out growth for S&P 500 companies next year. In an extreme case, where the US imposed levies on all global imports, earnings could drop 10 percent as costs would rise for Americans. The result would likely be that investor sentiment suffers, driving down valuations with the worst-case scenario being the S&P 500 falling to 2,230. These strategists are clearly at the top of their field so their warnings should be taken seriously.
Classiarius Viewpoint – Global Pain
The evidence suggests that in the long-run these tariffs would start to hinder global trade, and it is the countries that rely on trade most that would suffer. Germany and China could see additional pressure placed on their economies. While this is the case, the unintended consequences could be added pressure to the currently weak emerging markets of Turkey, Brazil, Argentina, Indonesia, South Africa, and others. Global contagion is now the new buzz-phrase that many are using.