A spike in trade tensions wasn’t enough to tank stocks Friday.
Instead, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite indexes all closed at record highs despite a hiccup in the trade progress that helped drive the S&P to a fifth straight week of gains.
Here’s what three of them are watching:
Margaret Patel, senior portfolio manager for the multi-asset solutions team at Wells Fargo Asset Management, said there are more important things to watch than the trade tiff:
“I think trade is really a very minor effect as far as corporate earnings or GDP — a tenth of a percent or something. What’s much more important is the underlying economic growth and how U.S. companies are positioned, and they really have, in my opinion, never been positioned better. So, I think that the optimists are going to be rewarded over the balance of the year and the market is going to surprise on the upside in spite of these uncertainties.”
Greg Boutle, U.S. head of equity and derivative strategy at BNP Paribas, actually saw more downside risks than upside catalysts:
“The market’s become much more optimistic about a trade deal and potentially tariff rollbacks, so I actually see the risk from trade now more asymmetric and more potentially to the downside. … Similarly, with growth, the market — certainly when you look at earnings estimates — is expecting a strong rebound into next year and further quarter[s]. We’ve just seen … the lows in terms of corporate earnings growth, so, again, I think the risk to those estimates are on the downside, not the upside.”
J.P. Morgan Asset Management’s Ben Mandel, a global strategist at his firm’s multi-asset solutions group, said the market’s overall layout seems to be slowly changing:
“For us, we’ve put a lot of emphasis on earnings and the fact that, when you look out into 2020, the expectations for earnings seem unrealistic. We haven’t really changed that. I mean, the contour of earnings is not that much better, and we just think that we’re in a situation where if you have stabilizing growth and lower recession risk, markets will sort of look through the downgrade cycle that we expect to come through for 2020. Of course, if you actually get a change in that, so, if there is a material change to our outlook — which is for a very slow, gradual acceleration in growth over the coming quarters back to trend — if you actually get some upside surprise to that and your earnings expectations themselves change, that’s when I think you’re opening up sort of a new era of upside risk. We’re not quite there yet, we’re just less defensive.”