US stocks, so far impervious to trade war, face tipping point as tariff pain deepens, analysts say
Investors have repeatedly shrugged off the trade dispute and pushed markets to new highs, but warnings of risks and uncertainty are growing
The latest round of US tariffs on another US$200 billion of Chinese imports took effect on Monday, making it the biggest so far. But instead of US stocks reeling amid the spiralling trade war, the S&P 500 Index has held up.
That market strength has given US President Donald Trump support to remain tough in the escalating dispute without facing a domestic backlash from investors. But analysts believe the stock market is at an inflection point if the trade war between the world's two largest economies continues to deepen.
The markets keep hitting new highs because the US tariffs against China are “largely viewed as a tactic – that the president was trying to be strong”, said Michelle Girard, chief US economist at NatWest Markets, the investment banking arm of the Royal Bank of Scotland, said recently at Yahoo Finance's All Market Summit. “People expect to see some agreements so that the worst-case scenario will be avoided.”
Watch: Trump slaps China with tariffs on US$200 billion more of goods
But a near-term resolution looks increasingly unlikely, as Beijing has retaliated with its own tariffs on US$60 billion worth of US goods and called off scheduled talks. And a breakdown in negotiations is likely a precursor for further escalation.