Investors are worried about an all out trade war that could bite into global growth, squeeze profit margins and drive down stock prices.
Stocks were slammed Tuesday amid worries the global economy and earnings would take a hit from a trade war between the U.S. and China.
Trade negotiators are scheduled to meet this week in Washington, but recent tensions make it less likely a deal will be agreed to before the Trump unleashes a new round of tariffs. Analysts say a deal is still possible, but the risks have risen that there will be more tariffs before a deal can be worked out, and it could then take a lot longer than expected for an agreement to be hammered out.
Keith Parker, chief U.S. equities strategist at UBS, said the hit to S&P 500 earnings would be 2% or greater, if the 10% tariffs on $200 billion in Chinese goods rises to 25%. Parker said earnings would be hit by 7% if there was a full blown trade war, while the S&P 500 could trade in a range of 600 points on different scenarios of escalation of trade wars to de-escalation, with the S&P now near the top of the range.
But at the same time, leaders in Washington and Beijing may feel like they have more leverage in the negotiations. China's recent data has shown its economy is stabilizing after months of fiscal and monetary stimulus. The Trump administration too must be feeling upbeat after a strong U.S. jobs report and higher stock prices.
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