S&P 500 bends as trade war spectre re-emerges

Bloomberg

Markets can ignore Wall Street when they want to.
They’ve largely disregarded warnings from equity strategists at some of the biggest banks. Goldman Sachs Group Inc. and JPMorgan Chase & Co. this week cautioned about the dire effect of a full-blown trade war — fears stoked by news that President Donald Trump had instructed aides to impose additional tariffs on Chinese products. A week earlier, Citigroup Inc. and UBS Group AG said another pullback in US stocks may be in the offing.
But the S&P 500 Index keeps churning higher. The benchmark rose 1.2 percent in the five days through Friday to cap its longest winning streak since February.
Months of trade wrangling, rising interest rates and emerging-market uncertainty have left the bulls immune to one-off geopolitical headlines and have instead kept them focused on economic fundamentals.
“You can only hit something so many times before it stops caring,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. “Longer-term, trade can be a big problem, but this is the point where the more trade headlines and trade uncertainty, the less impact on the markets.”
US stocks dipped midday Friday amid reports that Trump sought to proceed with tariffs on an additional $200 billion of Chinese products, only to snap back late in the session. Geopolitics remains the big unknown as optimism over the resumption of trade talks with China soured when Trump tweeted that the US isn’t under any pressure to reach an agreement. But there’s no rush for the exits yet.
“We take the president’s tweet to just be another negotiation tactic, something the market appears to have sniffed out as well,” said Andrew Adams, a strategist at Raymond James & Associates Inc.
That doesn’t mean things will always work out. Stocks can plunge into a bear market if the government slaps 10 percent tariffs on all imports, Goldman Sachs chief strategist David Kostin said in a note to clients. His concerns echoed those of JPMorgan strategists who estimated that the combined per-share earnings for S&P 500 companies could drop by as much as $10 if bilateral tariffs of 25 percent are imposed.
What’s helped lift spirits is an unexpected cooling in inflation for August, boosting bets that a more persistent slowdown in prices could affect policymakers’ outlook for future rate hikes. Energy shares rallied after a drop in crude inventories added to the optimism, while semiconductors bounced back from their dive earlier in the week. The Nasdaq 100 Index advanced 1.6 percent for the week, while small caps gained 0.5 percent.
This calm surface may nevertheless mask brewing anxiety over individual stocks. Even as the Cboe Volatility Index approaches a three-week low and the S&P 500 trades just off its record high, the Cboe put-to-call ratio for equities, which tracks volume in bearish versus bullish bets, has bounced higher after hitting its lowest level since June.
Investors pulled $2.3 billion from US equity funds in the week ended on September 12, according to EPFR data.