Wall Street's head-spinning reaction to trade headlines

Wall Street is living and dying on every trade headline, underlining how sensitive investors are to the threat of a f...

Posted: Mar 26, 2018 10:04 PM
Updated: Mar 26, 2018 10:04 PM

Wall Street is living and dying on every trade headline, underlining how sensitive investors are to the threat of a full-blown trade war.

Stocks soared on Monday after news that American and Chinese officials are holding behind-the-scenes talks aimed at averting a trade disaster.

Only days ago, President Trump's crackdown on China's trade tactics and fears of retaliation sent the market to its worst week in two years.

The head-spinning moves on Wall Street show that no one can say for certain how Trump's volatile trade agenda will play out. Can his administration negotiate better trade conditions with China before the situation gets out of control?

"The market is now worried about an escalation into a full-blown trade war," Morgan Stanley equity strategist Michael Wilson wrote in a report on Monday.

"While it is difficult to know how trade tensions will pan out in the end, the good news is that a bad scenario is quickly getting priced in," he wrote.

The Dow plunged more than 1,100 points during the final two trading days of last week alone. The heavy selling left the index at a four-month low and back in correction territory, more than 10% below its all-time high in January.

Investors had largely ignored the threat of Trump's protectionist trade policies for months. Those concerns are front-and-center now.

The fear is that Trump's tariffs on China will spark such a ferocious response that it will slow what it otherwise strong global growth.

Related: The shocking thing about Wall Street's fear of a trade war

It's reasonable to worry about trade. No one wins a trade war, and one between the world's two biggest economies would be particularly concerning.

Major American companies including Starbucks, Boeing, Apple and Qualcomm rely on China for a sizable portion of their sales.

But China and the United States remain far from an all-out trade war. China has so far avoided an aggressive response. China has threatened to impose tariffs on American fruit, nuts and other products to retaliate for Trump's steel and aluminum tariffs. But even those amount to only $3 billion of exports per year. And recent history shows that Trump's trade bark can be greater than his bite.

"Everyone needs to take a deep breath: This is not 1930, and Smoot-Hawley all over again," Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a report on Monday.

Shepherdson noted that global trade flows plunged 66% after the United States imposed a wave of tariffs in the 1930s, deepening the Great Depression. Trump's China tariffs amount to about $15 billion per year, or about 0.08% of the US economy.

While Trump's reversal of modern trade norms is "terrible and alarming," Shepherdson said the tariffs "won't kill the economic expansion."

Related: What happens when two huge economies turn on each other?

Wall Street is hoping the tariffs never even become a reality as Washington and Beijing work on a resolution.

Treasury Secretary Steven Mnuchin told Fox News on Sunday that he's "cautiously hopeful" the two sides can reach a deal.

US officials want China to reduce tariffs on American cars, spend more on US semiconductors and offer greater access to the Chinese financial sector, The Wall Street Journal reported. A Treasury Department spokesperson declined to comment on the report.

Trump's much-feared tariffs on steel and aluminum imports were watered down substantially. First, the administration granted exemptions for Canada and Mexico. Then major allies including the European Union, Australia and South Korea were spared as well.

After declaring a free trade agreement with South Korea "horrible," Trump reached a deal to revamp that deal on Monday. Capital Economics said South Korea emerged from the negotiations "unscathed" and with minimal concessions despite Trump's threats.

Greg Valliere, chief global strategist at Horizon Investments, predicts a similar outcome for Trump's trade spat with China.

"This will be classic Trump - he has bombastically appealed to his base, and will get something from China after he backs down on radical proposals," Valliere wrote in a report. "The markets should ignore the hype."

Related: Trump's low-profile trade leader gains more power

That is the hope investors displayed on Monday as US stocks recovered a chunk of last week's losses.

Morgan Stanley's Wilson characterized Trump's tariffs as a "negotiating ploy" and urged investors to buy stocks at these beaten-down levels.

"We are confident purchases at current prices will prove to be a very good entry point for an eventual move to new all-time highs this summer," he wrote.

But there remains a risk of a miscalculation by either Washington or Beijing that backfires on the global economy. And talks may linger without a resolution, denting confidence among businesses and consumers in the meantime.

"While we welcome the rally, we fear that it's too much too soon as the trade situation is far from settled," Michael Block, chief strategist at Rhino Trading Partners, wrote in a report on Monday.

-CNNMoney's Jethro Mullen and Daniel Shane contributed to this report.

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 91935

Reported Deaths: 2780
CountyConfirmedDeaths
Hinds6903153
DeSoto532153
Harrison368771
Jackson334367
Madison318086
Rankin313473
Lee254066
Jones236078
Forrest231069
Washington215671
Lafayette203039
Lauderdale1984123
Bolivar177465
Oktibbeha173749
Lamar156633
Neshoba1524103
Panola140926
Sunflower138543
Lowndes138457
Warren136650
Leflore134380
Pontotoc120416
Pike120148
Monroe117665
Scott115925
Copiah115433
Coahoma110927
Holmes108458
Marshall106714
Grenada104535
Lincoln104453
Yazoo103429
Simpson100142
Union96524
Tate94537
Leake93535
Adams89135
Wayne87121
Pearl River84850
Marion83633
Covington79321
Prentiss78617
Alcorn75310
Newton74722
Itawamba74121
George73913
Tallahatchie73418
Winston71919
Tishomingo65035
Attala63625
Chickasaw63524
Tippah63516
Walthall58925
Clay56216
Hancock55420
Noxubee54015
Jasper53615
Clarke52538
Smith51714
Calhoun50612
Tunica47213
Montgomery45020
Claiborne44916
Lawrence42212
Yalobusha41314
Perry39016
Humphreys36915
Quitman3625
Stone34611
Greene33516
Webster32813
Jefferson Davis32211
Carroll30812
Amite30710
Wilkinson30117
Kemper28515
Sharkey25812
Jefferson2359
Benton2151
Franklin1863
Choctaw1775
Issaquena1033
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 128818

Reported Deaths: 2284
CountyConfirmedDeaths
Jefferson18648332
Mobile12949288
Montgomery8560170
Madison736573
Tuscaloosa7015112
Lee558259
Shelby550149
Baldwin502148
Marshall376342
Etowah326344
Calhoun321139
Morgan312925
Houston260621
Elmore247547
DeKalb230119
St. Clair218134
Walker217780
Talladega199925
Limestone191919
Cullman180017
Franklin172728
Dallas172526
Russell16912
Autauga162424
Lauderdale159231
Colbert157224
Escambia154324
Blount150413
Jackson146610
Chilton143325
Dale128042
Covington127027
Coffee12388
Pike11329
Tallapoosa112483
Chambers110642
Clarke104417
Marion91428
Butler90238
Barbour8097
Marengo69319
Winston68512
Lowndes64327
Pickens62214
Bibb6179
Hale60828
Bullock58514
Randolph58512
Lawrence57620
Monroe5708
Washington54513
Geneva5404
Perry5356
Wilcox52911
Cherokee52816
Clay5187
Conecuh51611
Crenshaw51531
Macon46619
Henry4524
Sumter41719
Fayette4128
Choctaw34212
Lamar3302
Cleburne3116
Greene29915
Coosa1573
Out of AL00
Unassigned00
Tupelo
Few Clouds
80° wxIcon
Hi: 81° Lo: 57°
Feels Like: 81°
Columbus
Clear
81° wxIcon
Hi: 83° Lo: 60°
Feels Like: 82°
Oxford
Clear
79° wxIcon
Hi: 80° Lo: 54°
Feels Like: 80°
Starkville
Clear
79° wxIcon
Hi: 80° Lo: 57°
Feels Like: 80°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather