INSUBCONTINENT EXCLUSIVE:
NEW YORK: Investors are losing faith that a United States -China trade deal could happen soon and are bracing their portfolios for a more
prolonged battle that could hamper global growth.
An escalation in recent days in the long-running trade dispute between the world's two
biggest economies has stoked fears of a global economic slowdown, causing a sell-off in stocks led by trade-sensitive names and a move into
low-risk assets like United States Treasuries and gold.
China on Monday said it would impose tariffs ranging from 5 per cent to 25 per cent
on 5,140 United States products on a target list worth about $60 billion from June 1, striking back after the United States raised duties
last week.
Investors have begun to adjust their investment outlooks to factor in more uncertainty on the trade front, at least for the near
term.
"You're seeing see a move toward more defensive companies and companies that can still deliver cash flow and dividends," said Quincy
Krosby, chief market strategist at Prudential Financial in Newark, New Jersey
These adjustments will continue after Monday, she said
"There's more to this."
Among concerns for stock investors, a collapse of United States -China trade discussions could hurt the earnings
Investors expect tariffs could lift corporate costs and lower profit margins, while continued uncertainty surrounding a trade deal will
hinder the ability of companies to plan or make capital expenditures.
The sudden change in sentiment could cause some investors to move to
cash as well, some strategists said
"I wouldn't be surprised if some people are raising cash too," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich,
"The market is starting to realize the situation is as bad as it could be."
Optimism that the United States was close to a trade deal with
China had been one of the pillars of this year's stock market rally
The SP 500 returned to record highs in recent weeks and is still up 12.2 per cent since Dec
Investor expectations that the Federal Reserve will hold off on raising interest rates for now and that the economy will remain stable have
supported stocks as well and kept trade relatively calm.
Market volatility has jumped
After months of calm in United States stocks, the Cboe Volatility Index, a widely followed options-based barometer of expected near-term
volatility for stocks, last week hit its highest close since January
The index jumped again on Monday.
Within stocks, the hardest hit have been companies that rely heavily on global trade
Technology, the stock market's leader so far this year, was the day's worst-performing sector, falling 3.7 per cent, while Apple Inc ,
Boeing Co and Caterpillar Inc were among the SP 500's biggest drags.
At the same time, the SP 500 utilities index rose 1.1 per cent and
the real estate index was flat
While the SP 500 fell 2.4 per cent on Monday in its biggest daily percentage loss since Jan
3, United States Treasury yields dropped to six-week lows.
Ten-year yields fell below those on three-month Treasury bills
A sustained inversion of this part of the yield curve has preceded every United States recession in the past 50 years.
In addition to more
tariffs, traders are concerned China, the largest foreign United States creditor, may dump Treasuries to counter the Trump administration's
Such a move would send United States borrowing costs soaring, strengthen the yuan and hurt Chinese exporters.
"How low can yields go just
became the operative question," said Ian Lyngen, head of United States rates strategy at BMO Capital Markets in New York.
Many investors
remain hopeful of an eventual trade agreement, and some said the recent selling in stocks is not a big concern.
"I don't think the market is
doing anything other than taking a breather," said Jamie Cox, managing partner of Harris Financial Group in Richmond, Virginia
"If there was a situation where there wasn't some type of trade deal, you would see markets much worse, and it would be across the
board."
But many are wondering how long investors will tolerate the uncertainty surrounding the talks.
"Investors have wanted to believe the
best," said Kristina Hooper, chief global market strategist at Invesco in New York
Yet, "clearly this relationship is deteriorating
It's not what investors had hoped it was on Friday."