So what's going on? Traders are increasingly concerned that this is not so much about U.S.-China commerce as it is about the 2020 election, which means trade tensions — and who knows what other forms of market volatility — is likely to be around for a while.
Hence, the market reset we are seeing. Everything was down 2% to 4% Monday, particularly country-based ETFs like Germany, South Korea, Mexico and Brazil. It didn't matter much what sector you were in or whether you were a developed or a developing economy. Everything was down, because if we are entering a long-term trade war, global growth will be lower, global earnings will be lower and the market multiple will be lower.
"The uncertainty is very hard to model," said Alec Young, managing director of global markets research at FTSE Russell. "The market gave the president the benefit of the doubt and got burned. Now, he has lost credibility, so it will be a bigger problem for stocks. You can't just easily put a positive spin on things and assume it will work out."
The bigger issue traders are grappling with is the looming election: Are tariffs a permanent part of the U.S. economy? President Donald Trump has not removed any of the tariffs that have been imposed. Young is not sure if tariffs are permanent, but he has reset his expectations for market volatility: "We just have to live with this uncertainty, which means stocks trade at a lower level than they normally would."
BobPisani 😂 they are pulling up despite danger... it’s insane fo destroy all small traders...
BobPisani 2% drop for crying out loud.
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Source: Reuters - 🏆 2. / 97 Read more »