By Steve Goldstein, MarketWatch
It’s exhausting trying to get a sense of where the trade war is going.
Tariffs get raised, the U.S. talks of quick victories, China talks of drawn-out battles, phone calls happen or don’t happen. Market strategists have taken to employing Zen-like mantras.
“There is no obvious way in sight for both sides to back down and still save face,” say Darrell Cronk, chief investment officer of the Wells Fargo Investment Institute, and Paul Christopher, head of global market strategy. “We have written since the onset that the trade war will have to escalate in order to descalate.”
They say currency policy could remain a tool for pressure — by both sides, that interest rates will be lowered by central banks around the world, and that the U.S. and China seem set on finding creative new ways to escalate their conflict.
In the call of the day , they say stay in what they call quality — companies with strong cash relative to debt, such as the information technology /zigman2/quotes/207444675/composite XLK -0.10% and consumer discretionary /zigman2/quotes/200844504/composite XLY +1.58% sectors. For income, they would turn to IT as well as utilities and real estate, while reducing exposure to higher-risk asset classes like small-cap equities /zigman2/quotes/210598147/delayed RUT +2.77% and high-yield debt /zigman2/quotes/202941311/composite JNK +0.86% .
They say the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.23% could vary between 3,000 and 2,700 in the coming months, after closing Tuesday at 2,869.16. “Many investors dislike taking profits on successful positions, but this pruning may be the best way to generate returns — as long as investors are not in too much of a hurry to put that cash back to work,” the Wells Fargo strategists say.
After the Dow dropped 120 points on Tuesday, U.S. stock-market futures /zigman2/quotes/209948968/delayed ES00 +1.43% /zigman2/quotes/210407078/delayed YM00 +2.40% /zigman2/quotes/210219788/delayed NQ00 +0.07% headed south once again.
Inversion of the bond market continued, with the yield on the 2-year Treasury /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +1.09% 5 basis points higher than the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +6.04% .
British Prime Minister Boris Johnson announced he was asking the queen to end the parliamentary session in September and reconvene Oct. 14 — a move analysts say will limit opponents’ ability to stop a so-called no-deal Brexit. The news sent the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0243% tumbling.
After a former Fed official mused that the central bank should tank the economy to get rid of President Donald Trump, two current officials are due to speak, Richmond Fed President Thomas Barkin, and after the close, San Francisco Fed President Mary Daly.
Earnings came in from companies including jewelry retailer Tiffany /zigman2/quotes/209249105/composite TIF +0.24% and spirits giant Brown-Forman /zigman2/quotes/209253695/composite BF.B -1.91% . Tiffany held its fiscal-year outlook after reporting a decline in its second-quarter profit, while spirits maker Brown-Forman reported worse-than-forecast sales. A lowered earnings forecast may pressure product-design software maker Autodesk /zigman2/quotes/209828392/composite ADSK +1.92% .