Stocks are plummeting again as the U.S. China trade war escalated even further to begin the week.
China shot the latest salvo after levying tariffs on $60 billion in U.S. imports, beginning June 1. That follows the U.S.’s own increased tariffs on Chinese goods late last week.
Jim Cramer, host of CNBC’s “Mad Money,” says the markets should calm down once investors realize they are unfairly punishing stocks unaffected by the trade conflict.
“It’s very obvious that people are saying it’s restricted to a bunch of companies that do a lot of business in China and they include Xilinx, they include Caterpillar and you get Apple and you get Boeing and then people come to their senses and saying why are we selling Darden, Olive Garden. It really doesn’t make any sense to sell Verizon. Why are we selling AT&T other than the fact that maybe they’re losing subs? Why are we selling a lot of retailers that do no business in China and the answer is because the market is tanking, it’s the futures. The futures don’t know any better. The market will stabilize once we see Apple stabilize.”
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, says the economy remains in good shape despite the trade hit.
“So far there’s been a lot of bluster on both sides about trade over the past couple of years. We haven’t seen much evidence that is showing up in the aggregate economic statistics … Both China and the U.S. have far more to lose and I’m hopeful that cooler heads will prevail and this won’t go down a very nasty path. Obviously if it’s the worst case scenario and it’s ever increasing tariffs for an extended period of time, that could change things, that could have a real effect on U.S. GDP growth but right now I’m not seeing it so for one I’m in wait and see mode.”
Krishna Memani, chief investment officer at Oppenheimer Funds, says economic policy should continue to support markets over the longer term.
“I think the trend for the markets overall from a long-term perspective is still up. The two things in the last 10 years that have mattered the most is the Fed’s support of the U.S. economy and the Chinese support of the Chinese economy through stimulus. Both of those things stand. So the right model for dealing with the trade deal is the way Europe has dealt with Brexit which is it’s a gift that keeps on giving and it’s probably going to be the case for a reasonable amount of time. Underneath that though, we will have continued policy support and probably the economy continues to grow.”
Anastasia Amoroso, global investment strategist at JPMorgan Private Bank, says market confidence that a trade deal will be reached concerns her.
“We will have to acknowledge that the market is not prepared for the deal to fall apart here because if you ask most people they would tell you that there’s 80% odds that the deal is going to get done mid-May and that is not the case so that’s what worries me a little bit near term. And also, if you look at valuation of assets, we are slightly overvalued relative to where the economic data is. But then on the other hand, I look at positioning and it’s certainly not where it was stretched back to late 2018 levels so for that reason I think the downside could be shallower and certainly not 20% but maybe in the 10% range.”
Selling over the past week has hit the three major benchmark indexes hard. The S&P 500 and Dow Jones Industrial Average have fallen nearly 5% this month.
