Trade war concerns hang heavy over gains in equities, earnings

About 85% of S&P 500 firms that have published results have exceeded analysts’ estimates

The escalating trade war between the United States and China may dampen any upswing in US markets, despite better than expected earnings from companies.

Of the almost 400 members of the S&P 500 that have reported earnings this season, about 85 per cent beat analysts’ estimates.

The Dow Jones Industrial Average closed 0.54 per cent higher at 25,462.58 on Friday, after gaining barely 0.05 per cent in the previous week.

The S&P 500 index closed 0.45 per cent higher to 2,840.35, after gaining 0.76 per cent in the previous week.

“It is not certain whether further tariffs will be implemented, and, with economic growth strong, equity markets have fundamentals on their side. But markets have moved higher while the downside risk around tariffs has increased,” said Mark Haefele, global chief investment officer at UBS.

Last week China introduced new tariffs on $60 billion worth of goods imported from the United States in retaliation to a US proposal of a 25-per-cent tariff on $200 billion worth of Chinese imports.

“We are concerned that markets are, at most, pricing in first-order impacts of the tariffs that are about to go into effect. Investors are not currently pricing in the possibility of larger second-order impacts, such as supply chain disruptions, reduced hiring, lower investment, or a further escalation in the conflict,” Haefele said.

“UBS is reducing its size of the overweight position in global equities in our tactical asset allocation this month.

“We are left with a broadly neutral risk exposure, comprising small overweight positions in global equities and in emerging market sovereign debt, combined with an overweight to US 10-year Treasury bonds,” Haefele said.