Owing to new risks that may arise out of trade wars, the last few summer weeks are expected to witness stocks being vulnerable to correction or a situation of pull back. The market dropped sharply last week, primarily due to the dissatisfaction regarding the stricter-than-expected outlook on policy from the Fed. Soon after, there was fear among investors that President Donald Trump will start a new trade war with China, with very less chances of end in the near future.
According to Julian Emanuel, who is derivative strategy and equity head at BTIG, the main reason behind a possible correction in their view is that there is an immense vacuum in the market. Essentially, the vacuum has been more than a month long, considering the rhetoric direction. There are issues with China, the Fed as well as Brexit. In fact, there are very little chances of hearing anything about the first couple of issues.
On Thursday, Trump threatened to impose fresh tariffs on Chinese goods worth $300 billion. He announced that these tariffs would become effective from September 1 and it could be avoided only if China acts appropriately. However, no fresh talks can be expected to occur before September. As per leading economists, the implementation of these tariffs can potentially increase the risk of a recession hike in the US, especially if businesses retreat from investment and hiring. In addition, this can also push the Fed into cutting interest rates for rescuing the economy during the September meet.
Emanuel further commented that if stocks are found to decline too long or too much, some action on the part of White House can be expected to put a stop to the selling. This is because no president would allow a slowdown in the economy in a year when elections are due.
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