A cooling of the trade war between the United States and China is a bullish prospect for the stock market that few investors are considering, according to JPMorgan
- A chilling trade war between the United States and China could have a big impact on the stock market, according to JPMorgan.
- The stock market would rise, inflation would subside, and supply chain bottlenecks would ease if Biden rolled back existing tariffs, the bank said.
- “The possibility of easing US-China tariffs is a non-consensual tailwind for US and Chinese equities,” JPMorgan said.
US stocks will have more potential if the US rolls back existing tariffs on China and lowers the temperature of the ongoing trade war, JPMorgan’s Marko Kolanovic said in a note on Monday.
While few considered the potential for a reversal of the US-China trade war, this move could materialize ahead of the 2022 US midterm elections, as it would align on President Joe Biden’s campaign pledge, would address business concerns and provide relief to consumers in a time of high inflation, the memo said.
Any reversal in policy represents a “non-consensual tailwind for US and Chinese equities” as it would help contain inflation, ease pressures on the supply chain, and increase corporate profits, leading to a fallout. rise in share prices.
“A reversal of existing tariffs could represent a direct earnings per share of $ 5 for the S&P 500 with up to an additional $ 5 of second-order effects,” Kolanovic said. The bank estimates that commercial tariffs have cost consumers and businesses a total of $ 128 billion since they took effect in 2018.
The first two phases of tariffs on Chinese products, put in place by the Trump administration, reduced earnings per share from 7% to 8% for S&P 500 companies through prime and second order. There are currently between 350 and 370 billion dollars in tariffs.
“So even a partial unwinding would be a source of increased margin and revenue through lower friction costs, while also supporting the labor market recovery and helping to alleviate supply chain problems. “said Kolanovic.
The stock sectors that are on the rise if tariffs are removed are the same sectors that were hit the hardest when they launched, including industry, materials, tech hardware and consumer discretionary, Kolanovic said.