By William Watts, MarketWatch
Stocks clobbered on trade-war fears
It's a long way between here and earnings season.
Or at least it probably feels that way for stock market bulls.
Though they remain confident in the underlying strength of the
global economy and upbeat about corporate earnings growth, the
question will be whether they can keep their nerve in the face of
headlines over rising trade tensions between the U.S. and China,
political turmoil in Washington, the fallout from the Facebook
scandal and any other arrows sent their way.
Read:Here's why the Dow tumbled on the threat of a trade war
(http://www.marketwatch.com/story/heres-why-the-stock-market-took-the-china-tariffs-so-hard-2018-03-22)
Ed Keon, chief investment strategist at QMA, expects earnings
growth of 15% this year--a robust number enhanced by the corporate
tax cut signed into law last year. And global growth still looks
solid. When first-quarter earnings season gets under way in earnest
late next month, those factors could help stabilize the stock
market and perhaps return it to an upward trajectory, he said.
See:Here's all the stuff the U.S. imports from China that's
causing a huge trade deficit
(http://www.marketwatch.com/story/heres-all-the-stuff-the-us-imports-from-china-thats-causing-a-huge-trade-deficit-2018-03-23)
But it is the fear of a trade war that appears to be the
dominant concern for investors after a week in which the Dow Jones
Industrial Average tumbled more than 1,400 points, or 5.7%, to end
Friday at a 2018 low
(http://www.marketwatch.com/story/dow-set-for-triple-digit-drop-as-trade-war-fears-trigger-global-rout-2018-03-23),
while the S&P 500 index logged a 6% weekly drop and the Nasdaq
Composite saw a 6.5% weekly fall.
Globally, stocks shed $2.4 trillion in market cap over the past
week, according to Howard Silverblatt of S&P Dow Jones
Indices:
(https://twitter.com/hsilverb/status/977304633860386818)
Hard to handicap
"In the short run, it's hard for anyone to handicap what's going
to happen in a trade war or the possibility of a trade war," Keon
said. "So until we get a little bit less tension on that front, I
think it will be hard to make a lot of progress from here."
Trade tensions appeared to move to the fore on Thursday, when
President Donald Trump announced plans to impose tariffs on $50
billion worth of Chinese imports. Beijing vowed to retaliate, but
so far has outlined plans to impose tariffs on just $3 billion of
U.S. goods, a move seen as leaving room for both negotiation and
escalation.
Opinion:Who gets hurt most in a trade war? Mostly not China
(http://www.marketwatch.com/story/who-gets-hurt-in-a-trade-war-mostly-not-china-2018-03-23)
Fears that a series of escalations could lead to a heightening
of global trade tensions and potentially weigh on the world growth
picture were widely blamed for the stock market's decline, but it
wasn't the sole factor.
Don't forget Mueller
In fact, some market watchers doubt that the selloff--and
increased volatility in general--had much to do with tariff plans
that had been telegraphed well in advance by the
administration.
Other suspects include the Thursday resignation of Trump's
personal lawyer, who had urged the president to cooperate with the
special counsel probe led by Robert Mueller. His departure could
indicate that "the gloves are off," heralding open conflict between
the president and special counsel, in what would be "not an
especially equity friendly scenario," said Nicholas Colas,
co-founder of DataTrek, in a Friday note.
But Colas went on to argue that the decline might simply reflect
the Wall Street tenet that "someone always knows more than
you."
"Washington, D.C., has become as leaky as Williams Sonoma's
finest colander, and every major hedge fund and money management
firm has their sources of incremental information there," he wrote.
"It is their job to know what's happening next, and we must assume
that they are effective in that role."
'Nothing wrong' with holding some cash
He agrees, however, that events in Washington are likely to
dominate market action until earnings season kicks off--a factor
that could be a problem if traders and investors who suspect others
have an information advantage prove rationally unwilling to step in
and save the day.
Should investors hunker down? Keon said QMA remains overweight
stocks globally in its portfolios, but added "there is nothing
wrong with holding some cash now that investors are nervous."
Overall, however, investors should keep in mind that after a
year of historically subdued volatility, recent swings mark a
return to "more normal market behavior."
Facebook fallout
Investors will also be watching the fallout from Facebook Inc."s
data-privacy scandal. Shares (FB) of the social media giant skidded
nearly 14% this week and weighed on the entire tech sector amid
fears of increased regulation, analysts said. Tech was the biggest
weekly decliner of the S&P 500's 11 sectors, falling 7.9%, and
the tech-heavy Nasdaq Composite underperformed its major-index
peers.
See:Facebook CEO Zuckerberg's apology tour--too little, too late
(http://www.marketwatch.com/story/mark-zuckerbergs-leadership-called-into-question-as-facebook-controversy-continues-2018-03-21)
Investors will also look for more clues to the Fed's rate path
after stocks seesawed but then ended lower in the wake of the Fed's
widely expected decision to lift interest rates on Wednesday while
policy makers maintained a forecast to deliver two more rate
increases in 2018
(http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21)
but signaled a faster pace of tightening in coming years.
Read:Hedge funds are studying Jerome Powell's facial expressions
to predict interest rates
(http://www.marketwatch.com/story/hedge-funds-are-studying-jerome-powells-facial-expressions-to-predict-interest-rates-2018-03-22)
(END) Dow Jones Newswires
March 24, 2018 17:33 ET (21:33 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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