Gold Silver Reports (GSR) – ✅✅✅✅✅ What Trade War? Foreign-Facing Stocks Keep Beating the S&P 500 — Freetrade proponents might be out of fashion at the White House, but not in the U.S. equity market.
A Goldman Sachs Group Inc. basket of U.S. stocks that derive the bulk of sales abroad has outperformed the S&P 500 Index since March 1, the day that President Donald-Trump rattled financial markets with a surprise-announcement that his administration will impose tariffs on steel and aluminum imports.
While the Dow Jones IndustrialAverage plunged 420 points March 1, it’s rallied almost 3% since as investors grow more confident that the most severe protectionist policies won’t become reality.
“Although equity prices have moved in reaction to the proposed metals tariffs, investors do not appear concerned about escalating trade conflict,” David Kostin, Goldman’s’ chief U.S. equity strategist, wrote in a note to clients lateFriday. “The strong growth environment helps explain the resilience of equity prices and investor sentiment.”
That’s not to say the proposed tariffs don’t pose a threat to equities, Kostin added. While the levies announced so far will have a trivial effect on U.S. activity, Goldman’s economists believe retaliation from majortrading partners is likely.
“The larger threat to corporate earnings and equity valuations is the potential for escalating trade conflict in response to these tariffs,” Kostin wrote.
Intelligence analysts estimate that if the U.S. raises import costs by 10 percent and the rest of the worldretaliates by lifting tariffs on U.S. exports, the cost by 2020 would be 0.5 percent of global GDP. That would amount to $470 billion, Jamie Murray and Tom Orlik wrote in a note Monday.
And a peek at the underbelly of the equity market suggests investors see little reason to price in that risk, remaining confident that the Trump administration isn’t spoiling for a fight. Goldman says the out-performance of domestically focused small caps in the Russell 2000 this month has to do with positioning and the months of prior under-performance.
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Indeed, Canada and Mexico have already been exempted from the tariffs indefinitely as renegotiations of the NorthAmerican Free Trade Agreement continue. Australia may also avoid the taxes, and Treasury Secretary Steven Mnuchin said discussions regarding furtherexemptions will be ongoing. Trump himself has given the European Union an out, tweeting that if the bloc drops “their horrific barriers & tariffs,” he’ll spare it. – Neal Bhai Reports
