The Markets Are Caught in the Trade War Crossfire

The Markets Are Caught in the Trade War Crossfire

  • 07.01.19
  • Markets & Investing
  • Article

Tariff threats among the U.S., China and now Mexico have rekindled trade tensions, introducing uncertainty and volatility into the equity markets.

To read the full article from Mike Gibbs and Joey Madere, CFA, see the Investment Strategy Quarterly publication linked below.

With trade conflicts flaring, the equity markets are likely to continue struggling. Although both the U.S. and China appear dug-in, our base remains that cooler heads will prevail at some point, and something will eventually get done. However, “some point” may mean much further out in time and may require weakening economic or tightening financial conditions (i.e., equity market declines) in the meantime.

Key Takeaways:

  • Regarding China and the U.S., it is our belief that the two sides will do enough to soothe equity markets over the path of trade negotiations. However, with a belief that a “deal” may be challenging to reach in the near term, our base case year-end S&P 500 expectation remains 2946 (17.75x $166 earnings per share) for now.
  • From a global perspective, the U.S. equity market has held up better than most areas around the world and is also exhibiting better fundamentals. Rela­tive strength for the U.S. vs. the world broke out to new highs through the volatility. We continue to favor U.S. equities over non-U.S., with a bias toward large-cap growth. Emerging markets stand to benefit as the U.S. dollar is likely to weaken if the Federal Reserve follows through with rate cuts.
  • We favor companies with more U.S. rev­enues, since trade is unlikely to go away anytime soon with President Trump making it a campaign topic.

Read the full July 2019 Investment Strategy Quarterly
Read the full July 2019
Investment Strategy Quarterly

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance that any forecasts will be realized. International investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. Investing in emerging markets involves additional risks. Investing in certain sectors may involve additional risks and may not be appropriate for all investors. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index.