One thing many of Wall Street’s top minds could agree on is that if President Donald Trump walks away from this week’s G20 summit with no progress on the U.S.-China trade front, a good bit of air could come out of the red-hot stock market.
“I think you will see markets really reverse,” Vantagepoint Investment Advisers Wayne Wicker said on Yahoo Finance’s The First Trade. Vantagepoint has about $29 billion in assets under management.
“There is a lot of optimism that we will get a trade deal here, I happen to believe it will take a lot longer than people anticipate,” Wicker said, adding that he thinks a 10% to 15% pullback in markets sans a trade deal wouldn’t be surprising.
In fact in a note to clients, Wicker suggested that trade tensions could “murder markets.”
Here comes the G20
Markets will enter the closely watched G20 feeling pretty good. The Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have all rallied hard off the early June lows. Investors have piled back into trade-sensitive stocks such as Apple (AAPL). In effect, investors have completely ignored the possibility a U.S.-China trade deal won’t be signed until 2020 and that $300 billion in additional tariffs will not be put in place by the Trump administration.
Numerous sources Yahoo Finance has spoken with have said clients remain in the mindset that the Trump administration will get a deal done. It’s in their best interests to do so to keep the U.S. economy and stocks humming ahead of Trump’s 2020 re-election bid.
But that fierce optimism on trade could quickly go south if the G20 goes awry this weekend. Suddenly, investor focus would switch from the benefits to risk assets from cheap money promises by the Federal Reserve to concerns on a full-blown trade war hammering Corporate America.
As evidence of that potential impact look no further than FedEx (FDX) — the shipping giant pinned its awful quarter and outlook this week on weakening global trade conditions.
“It reminds me a bit about that old adage of Mike Tyson that everybody has got a plan until they get hit in the mouth,” FedEx CEO Fred Smith told analysts on a conference call this week. “So clearly, we’ve been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration.”
If Trump doesn’t make a deal at G20
Miller Tabak strategist Matt Maley tells Yahoo Finance the markets could be “clobbered” if the G20 is a disappointment.
Most bulls in this market — and there are clearly a ton of them — are probably hoping Trump doesn’t take the advice of confidant and banking titan Jamie Dimon, JPMorgan Chase’s CEO.
Dimon told Yahoo Finance editor-in-chief Andy Serwer that if Trump “can’t get a good deal, then he should walk away. That's a serious statement I just said: If he can't get a good deal, he should walk away.”
If that happens, expect the bulls to walk away from stocks.