Could The Trade War Escalation Create An Attractive Entry Point For Investors?

Perhaps the strength of the U.S. economy and growth of the U.S. stock market during the initial stages of 2019 led to an even tougher U.S. stance on the trade negotiation front, culminating in an increase in tariffs on $200 billion of Chinese goods from 10% to 25%. This was met by a response from China initiating their own new tariffs, effective on June 1, which would impact $60 billion in U.S. imports and would range from 5% to 25%. As we understand it, the tariffs will impact a wide range of U.S. products, including coffee, beef, salmon, flowers and some fruits and vegetables.

The U.S. has also suggested that additional tariffs on another $325 billion of Chinese goods are also a consideration if a deal is not reached. It has been reported that if this final round of tariffs is ultimately put in place, nearly every Chinese import that enters the U.S. will be subject to some form of a tariff. According to a CNBC report this morning, Goldman Sachs has given a 30% probability to the U.S. actually following through and imposing tariffs on the remaining $325 billion in Chinese imports.

Markets were previously pricing in some form of an upcoming trade deal announcement so the re-emergence of prolonged trade war fears and uncertainty over what comes next has led to a market sell-off. As of the writing of this post, the Dow Jones Industrial Average was down over 620 points, representing a 2.40% loss for the underlying U.S. stocks from its open. As it relates to Chinese stocks, the Shanghai Shenzhen CSI 300 Index was down over 61 points today, representing a 1.65% loss, in USD terms, from its own respective open.

While it is not known, at this time, how far the current sell-off will extend or how long any new tariffs will be in place, this market pullback may present an attractive entry point for certain investors with cash still on the sidelines due to concerns with high stock market valuations. Remember that when President Trump first tweeted on May 5 about the new round of tariffs, both the S&P 500 and the DJIA were trading near all-time highs. Consider the following data points as markets closed on Friday, May 3 and where markets are currently trading on May 13.

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Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust® Unit ...

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