“It’s not your father’s trade war.” That phrase resonates around Wall Street as the White House and the Chinese regime exchange tit-for-tat tariff escalations. But the US stock market remains buoyant, while almost all the other major bourses worldwide are battered.
That kind of disparity can’t last, according to JP Morgan Chase strategists. In a note to clients, they call for shifting away from American stocks to others, notably those of emerging market countries, which have been in the dumper lately.
The stimulus for US equities from the recent federal tax cut, as well as currency and interest rate differences, will not last, they warned.
“The large US fiscal boost this year, as well as the delayed positive impact of weak USD and low rates from last year created a ‘sugar high’ for US assets this year,” the strategists wrote. “We expect convergence of macro fundamentals between US and international markets in the coming quarters; with equity markets tending to price forward fundamentals by six to 12 months, the time for the rotation may be now.”
Indeed, the S&P 500 is up almost 9% this year, and gained 0.54% Tuesday, despite the trade war intensification, with Beijing responding to President Donald Trump’s new duties on $200 billion in Chinese imports with sanctions on $60 billion in US goods. Meanwhile, China’s stocks are off almost 20% in 2018, although they did gain 1.82% on Tuesday, perhaps a sign that investors think the clash will be resolved soon. Collateral damage, at least in part: EM and developed market alike are for the most part down.
International politics aside, the JP Morgan contention has a longer-term focus, and it strikes a discordant note in an otherwise happy US investing scene. The current consensus is for a recession in 2020, when an ever-rising S&P 500 may well be a nostalgic memory.