Money Traders debate how a trade war will affect the stock market

04:31  12 july  2018
04:31  12 july  2018 Source:   cnbc.com

Toronto hits record close, while U.S. markets also gain ground

  Toronto hits record close, while U.S. markets also gain ground The base metals and industrial sectors helped Canada's main stock index close at a record high Monday, while U.S. stock markets also climbed higher as technology companies and banks rose. Stocks were up across North America following positive economic data from Canada and the U.S. last week, said Craig Fehr, a Canadian markets strategist with Edward Jones in St. Louis."I'd say the real catalyst here is a bit of a distraction from what's been weighing on markets recently, which has been a fear of a budding trade war, and that distraction is coming in the form of some strong and encouraging economic data.

Traders pass in front of an American flag displayed outside of the New York Stock Exchange in New York. You would have thought the market reaction would have been much worse, given that we are now on the brink of a real — not imagined — trade war .

See: Worried about a trade war ? Stock - market investors should think small. Pantheon, he said, is prepared to pull back its growth forecasts for this year as a result of the Trump tariffs, depending on how aggressively China responds, “and the stock market has already delivered its own verdict.”

Traders pass in front of an American flag displayed outside of the New York Stock Exchange in New York.© Provided by CNBC Traders pass in front of an American flag displayed outside of the New York Stock Exchange in New York.

On the way to work early Wednesday morning, the main topic of conversation was the fact that the Dow futures were down less than 200 points, a surprise given the announcement of tariffs on an additional $200 billion of China exports the previous evening.

You would have thought the market reaction would have been much worse, given that we are now on the brink of a real — not imagined — trade war. This fight is principally with China, but there are also tensions with key allies over aluminum and steel tariffs as well as with the EU over auto tariffs.

Trade war holds back Canadian stocks in first half, but tide could be turning

  Trade war holds back Canadian stocks in first half, but tide could be turning Despite making little gains so far this year on trade tensions, market strategists are predicting that it won't be difficult for the Canadian stock market to bounce back and outperform in the second half of 2018. Canadian equities started the year down, dragged lower by volatility that rocked U.S. markets in the first quarter. But they have roared back to life in the past three months.

How to Time the Stock Market . How to Find and Evaluate Stocks . Trump said Thursday's tariffs were "the first of many," while China's U.S. ambassador said Beijing is "not afraid" of a trade war .

Gary Cohn’s departure from the White House is stoking fears of a potential trade war , leaving investors to ponder how to position themselves should the U.S. and major trading partners start trading fusillades of tariffs and other measures.

And yet the U.S. stock market has held up remarkably well. Stocks were down Wednesday, but the S&P 500 is up nearly 5 percent since bottoming in early May, outperforming most other countries, even as the trade wars accelerated.

While some insist that economic growth is the key to the market's strength, others are noting that the effect of tax cuts and other stimulus is offsetting the negative trade war headlines: "Our belief is that tax reform has enabled the U.S. to withstand the trade battles more so than other countries," Dan Clifton from Strategas wrote to clients this morning.

He estimates that, as a "worst-case" scenario, tariffs would cost $120 billion, but then he goes on to list the positive offsets from tax cuts and fiscal stimulus:

Broad rally helps Toronto market hit new high

  Broad rally helps Toronto market hit new high A broad-based relief rally helped Canada's main stock index close at a record high Thursday after markets retreated globally a day earlier, while U.S. stock markets also pushed higher. The Toronto Stock Exchange's S&P/TSX composite index closed up 150.10 points or 0.91 per cent at 16,567.42 to top the record high set on Tuesday.

Markets reporter. U.S. stocks are experiencing a resurgence of volatility as investors grapple with the prospect of a potential trade war and its The Dow has the least U.S. revenue exposure, at 61.7%. The level of U.S. exposure roughly correlate with how well the indexes have held up thus far this month.

What a trade war might mean for consumers. That’s what the debate is about.” It will affect our productivity [and] growth.” He added: “ Market distortions in China are now global distortions.”

U.S. fiscal stimulus:

Tax cuts: $200 billion

Federal spending: $100 billion

Profit repatriation: $500 billion

Source: Strategas

The estimated $800 billion from tax cuts and stimulus is far greater than his estimated worst-case scenario from tariffs of $120 billion, and this is a major fact holding the markets together.

Other market watchers seem to agree. Jan Hatzius of Goldman Sachs also told clients this week that, “We continue to believe the direct effects of the tariffs should be relatively minor for the US economy." He estimates that the result of all tariffs so far proposed "would lower the level of US GDP by 0.1pp compared with no tariff increases” and that the effect of tariffs are only a small share of corporate profits "to date."

It's that "to date" part that has gotten a large part of the investor base considerably more nervous. Mike LaBella from QS Investors noted on CNBC Wednesday that, "Bringing in an additional $200 billion in potential tariffs can quickly escalate to over a trillion dollars of trade-related tariffs that hit both China, the US and the European Union. This is a major issue that the market, up until today, has been completely neglecting.”

The commodity markets aren’t neglecting the threat. Copper is down dramatically in the past month on concerns over a slowdown in China and an increase in trade tensions.

The Federal Reserve, at its last meeting, was already nervous. "[M]any District contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity; contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy."

The Fed said this a month ago (June 12 to 13) — a time when tariffs looked like only a remote possibility. What side of this debate do you think they will be on now that tariffs have become very real?

Stocks sink as trade war heats up with new tariff threats .
Stocks sink as trade war heats up with new tariff threatsLoad Error

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