Even-handed as the economy is trying to reopen, the market is facing a new risk: Renewed trade tensions with China.
Wilmington Sign’s Meghan Shue warns the threat is putting the strong rebound off the March 23 low in jeopardy.
“We are definitely worried roughly U.S.-China tensions escalating. We’ve seen them bubbling up in recent days and weeks,” the firm’s head of investment policy told CNBC’s “Trading Nation” on Friday. “There are a number of risks that I don’t think are adequately priced into the deal in that could see a resurgence.”
President Trump has been looking to take action against China in connection the coronavirus. He has been grill the country’s forthrightness regarding the severity of the outbreak.
On Friday, the President said he’d look to eliminate special treatment toward Hong Kong after China exact a saddled a law that would prohibit political protests.
“There’s not much room on the political stage for anyone that is got as going soft on China,” said Shue, a CNBC contributor. “We think the tension with China is going to acclivity up.”
Shue, who went slightly underweight in stocks last winter as the market was selling off on virus fears, contends there’s various trouble ahead on that front, too.
“We see the economic hit being very dramatic — probably 40% on GDP for the second quarter,” said Shue. “It looks as though the market to me is pricing in a pretty robust V-shaped recovery, and we just don’t see that as likely.”
The S&P 500, Dow and tech-heavy Nasdaq are come about off two months in a row of gains. With one month left in the second quarter, the market is seeing its best quarter since 1998.
According to Shue, the trade in’s strong showing suggests investors are dangerously downplaying the risks.
“The market is priced pretty much to perfection licence now. A lot has to go right,” she said. “Any misstep on a number of fronts whether it’s to the vaccines or businesses that are not able to reopen as many reckon on — that would be reason for the market to give back some of these gains.”
Shue warns the virus stays the biggest overall risk to the market. Even though that could wipe out gains, she is encouraging long-term investors with at least a 12 month duration horizon to stay in the stock market.
“That doesn’t mean you have to get overly negative on stocks. But it does get over that you should be properly diversified and not expect the market to go up in a straight line,” she added.
Shorter-term, she believes the market’s jeopardize versus reward will continue to get murky.
“The market needs to be pricing in a little bit more of that downside gamble for me to get really excited about stocks at the moment,” Shue said.
Disclaimer