Despite jangled nerves over the increasing potential for a global trade war, domestic stocks are outperforming their global counterparts, suggesting the U.S. has the least to lose should the conflict escalate.
As major U.S. indexes notched losses of 1 percent or better Monday, others around the world got slammed as well. The Hang Seng in China edged nearer to the brink of an outright bear market, while the German, French and broad European indexes all posted severe drops.
For much of the year as President Donald Trump has continued to saber-rattle about tariffs against Chinese and European goods crossing the U.S. border, domestic stocks have outperformed. While the economic brinkmanship has tamped down returns compared to 2017’s robust market, the U.S. the climate remains mostly constructive.
“So far stateside equity and bond markets have shown a relatively sanguine stance amidst escalating trade tension. This has been reflected in a resilience of the US markets as trade issues garner increasing investor attention,” John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, said in a note. “Stateside the economic expansion continues to appear sustainable and expectations for a good Q2 earnings season remain in place. These factors continue to provide positive offset to concerns about trade.”
The S&P 500 has managed to scratch out a 4 percent gain year to date (as of Friday) despite the peaks and valleys of how the trade negotiations have transpired. When comparing exchange-traded funds that track major country indexes, no other developed nation has topped the U.S., with France coming closest at a 1 percent or so return, according to Bespoke Investment Management.
There’s reason to believe that the U.S. has more to gain than lose, at least in a macro sense, from a protracted trade battle.
Trade agreements implemented since the early 1990s — around the time NAFTA came into being — add about 0.2 percent a year to U.S. GDP, according to Societe Generale. Any reversal, then, would have a “modest impact” on the economy, the firm’s economists said.
For investors, then it’s a matter of calibrating risks and developing an appropriate response.