Rallies, Recessions and Routs: Wall Street handicaps a trade war

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Published: May 18, 2019 6:33:57 PM

According to Morgan Stanley’s Mike Wilson, too much tit-for-tat creates the potential for a recession. Chris Harvey, head of equity strategy at Wells Fargo, predicts a mere 5% decline for the S&P 500.

Wall Street, trade war, Morgan Stanley, JPMorgan, us china trade war, us, china, Rallies, Recessions, Routs, market news, Wall Street, S&P 500, Stock market, US stock market, US china, market newsRallies, Recessions and Routs: Wall Street handicaps a trade war (Reuters)

Ask Wall Street strategists what equities will do in a trade war, and prepare to be confused.

According to Morgan Stanley’s Mike Wilson, too much tit-for-tat creates the potential for a recession. Chris Harvey, head of equity strategy at Wells Fargo, predicts a mere 5% decline for the S&P 500. JPMorgan’s Marko Kolanovic says the index will surge to 3,200 in the best scenario and sink to 2,550 should talks crash. In other words, either gain 11% or fall 11%.

It’s easy to blame trade for whatever just happened in stocks. But don’t try getting too firm a consensus on the future. Because nobody knows.

For now, traders are heeding the downside, ramping up hedges against future equity losses. In the options market, bearish bets have exceeded bullish ones by seven straight days, the longest stretch since December, when the S&P 500 fell to the brink of a bear market, data compiled by Cboe and Bloomberg showed. That’s a lot of demand for protection given the index was down only 4.5% from its peak at the nadir Monday.

Down 0.8% to 2,860 over the past five days, the S&P 500 had its first back-to-back weekly losses this year, halting a four-month, 18% rally. Below is a list of what other strategists say about the trade risk.

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