The single biggest fear dogging the financial markets is not the possible unraveling of emerging markets or the U.S. midterm elections but the specter of a full blown trade war, according to some strategists.
Yet for all the worries about mounting trade friction, the stock market is expected to remain resilient as a robust economy and strong corporate earnings help to provide much needed support.
“It may not seem like it, but the SPX hasn’t seen a 1% decline since June 25 or a 1% gain since June 1. That’s pretty amazing knowing that many high-profile stocks have gotten hurt over the last few months,” said Frank Cappelleri, technical strategist at Instinet LLC.
That is not to say that market participants are immune to trade-related headlines. Stocks may have closed out the week higher, but investors were decidedly more risk-averse with some $5.6 billion in funds exiting from equities, according to Bank of America Merrill Lynch.
Phil Orlando, chief equity market strategist at Federated Investors, believes the ongoing trade war is among the several headwinds that the market is facing, along with the Federal Reserve’s move to tighten monetary policy and a potential policy shift from Democrats retaking the House in midterm elections. But a powerful economic growth is likely to prop up the market, insulating stocks from a prolonged decline, he said in a note.
“If equity markets do experience some increased turbulence and a 5% air pocket, this could represent an attractive buying opportunity,” said Orlando who maintained his year-end S&P 500 target of 3,100.
And for proof that this latest bout of global fight will not have a lasting impact on stocks, DailyFX published the chart at the top of this report that showed the Dow Jones Industrial Average DJIA, +0.03% steadily rising over the past century through myriad seismic geopolitical events, crises, and trade wars.
See: A brief history of trade wars
Other than trade, investors are expected to focus on the following issues next week:
1. The 10-year anniversary of the financial crisis
In September 2008, arguably the greatest moneymaking machine in the world—the U.S. financial industry—teetered on the verge of collapse and the stock market was in a free fall.
Ten years on, U.S. financial institutions are stronger and stocks are trading at near records.
“The U.S. banking industry is not at risk at present. Housing is not in trouble,” Dick Bove, chief strategist at Hilton Capital Management LLC, told MarketWatch.
Bove, in the years leading up to the 2008 subprime crisis, had not only warned that the housing bubble was about to burst, but also predicted that the U.S. was headed for severe financial...