Escalating trade war tensions and recession fears have hammered stocks in recent weeks but things may not be as bad as they seem.
Last Monday was the worst day of the year for U.S. stocks as the Chinese yuan fell below a key level in retaliation to President Donald Trump’s tariffs threat.
Trump maintained his strong stance in a series of tweets over the weekend and a key decision on the U.S. Huawei ban is looming a week today.
But JP Morgan Cazenove says, in the call of the day, that it is too early to expect the next U.S. recession and investors should be optimistic on equities.
“The current macro setup has more similarities to the ‘15-’16 mid-cycle correction episode rather than the end of the cycle, in our view.” JP Morgan’s head of global equity strategy Mislav Matejka said.
“The U.S. continues to be supported by the still better relative earnings / macro backdrop and elevated levels of buybacks,” he added.
Companies with higher domestic exposure have performed well in earnings season, showing that all is well, at home at least.
U.S. stocks endured a wild ride last week and could be set for more turbulence this week.
Goldman Sachs cut its fourth quarter U.S. growth forecast from 2% to 1.8% as it warned the trade war was having a greater impact on the economy than expected and the risk of recession was rising.
Analysts from research firm TS Lombard said the U.S. treatment of Huawei was key to the unfolding of the trade war drama.
In May the U.S. put Huawei on a trade blacklist, requiring firms to obtain a license to do business with the Chinese telecoms giant.
They expected Trump to allow U.S. firms to trade with the Chinese tech giant on a case-by-case basis, which will provide a boost to domestic suppliers.