The temporary lull on Wall Street from the spate of demoralizing trade news battering stocks continued to the relief of investors, with stocks rising for a fourth straight day Tuesday.
In the two trading days since president Donald Trump declared a trade war against China on July 6, the market has, somewhat incomprehensibly, moved from panic to a state of tense calm. Stocks on Tuesday rose for a fourth straight day. The S&P 500 SPX inched upwards 0.3 percent to post its highest close since Feb. 1, while the Dow Jones Industrial Average (DJIA) advanced by 143 points to rise 0.6 percent.
The upcoming earnings season is also set to bring more relief from trade tensions. Earnings are expected to grow more than 20 percent year-on-year in the second quarter, which is welcome news however you take it. Adding to the calmer atmosphere is news that U.S. economic growth likely rose in the second quarter, as well.
Then, there is the growing perception of trade problems will be relegated to the back burner in the short-term considering the market's current resilience. This pause has led some investors to turn their focus on other concerns such as decelerating synchronous global growth.
The worry among investors is sputtering global growth, which slowed down in the first quarter. While the world economy is exhibiting signs of making a comeback, there's no mistaking the threat of another slowdown to synchronous global growth.
The trade war between the U.S. and China will invariably slow down global growth. Initial expectations for synchronous global growth to continue at the same pace as 2017 have now been proven exaggerated. Investors are now consigned to the reality of a continued and slower expansion. Nothing spectacular.
Global growth might still be alive, believes Kate Warne, investment strategist at financial services firm Edward D. Jones & Co, LP. She pointed to evidence of improvement in Europe and Japan with their accommodative monetary policy. This status offers opportunities for investors, combined with lower valuations in developed markets outside the U.S., she said.
She believes the tariffs announced so far are unlikely to have a significant impact on the overall U.S. or global economy. What is worrisome, however, is the danger that a cycle of tariffs and retaliatory tariffs turns into a spiral.
"We're concerned because once tit-for-tat tariffs start, it's hard to find a stopping point," she said.
