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Investors are starting to worry about the economy

Wall Street doesn't seem to care about the escalating trade war between the United States and China.T...

Posted: Sep 18, 2018 9:46 PM
Updated: Sep 18, 2018 9:46 PM

Wall Street doesn't seem to care about the escalating trade war between the United States and China.

The Dow jumped 175 points and the Nasdaq climbed 1% on Tuesday despite Washington and Beijing pushing ahead with another round of punishing tariffs. Investors are betting the US economy will continue to power ahead of the rest of the world.

Yet beneath the surface, some are getting worried about the ability of the global economy to withstand the trade war and brewing storms in emerging markets.

One in four professional investors is bracing for global growth to slow over the next year, according to a Bank of America Merrill Lynch survey published on Tuesday. That's the worst outlook in this monthly survey since December 2011 and up from August when just 7% of investors were pessimists.

And nearly half of investors surveyed by Bank of America believe the US economy will decelerate and rejoin the rest of the world.

Just one in three said that in August.

"Investors are holding on to more cash, telling us they are bearish growth," Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, wrote to clients.

Not surprisingly, the trade war topped the worry list for the fourth straight month. The second-most popular "tail risk" is related: a slowdown in China's economy.

The survey was conducted September 7-September 13, before President Donald Trump leveled a 10% tariff on $200 billion worth of imports from China AND Beijing said it will retaliate by putting tariffs on $60 billion worth of US imports at a rate of 5% to 10%.

"It certainly does seem that we're approaching spiral stage," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote to clients on Tuesday.

Anne Van Praagh, a managing director at Moody's, said that higher tariffs will "hurt the economy by distorting prices," creating inefficiencies and having a chilling effect on investment decisions.

'Black Swan' gauge on the rise

Wall Street seemed to take the news in stride: the Dow climbed within 400 points of an all-time high, the first since January.

The VIX volatility index, a measure of market turbulence, declined 7% to a very quiet level of 13. Recall that the so-called "fear gauge" shot up to 50 in February.

However, a lesser known barometer of investor worry is sending more ominous signals. The CBOE SKEW Index rises when option trades signal that concern about a "black swan" incident -- an unexpected event that has a huge impact. The index is trading near the highest level since records began in 1990.

US markets have been bolstered by a strong domestic economy that can hopefully shrug off the trade tensions. The US unemployment rate is sitting at just 3.9%. America's gross domestic product climbed at an annualized pace of 4.2% in the second quarter.

Despite the trade standoff, growth is on track to accelerate to 4.4% in the third quarter, according to a volatile forecasting model from the Atlanta Federal Reserve.

'It's going to be a mess'

The impact from proposed tariffs on GDP growth in the United States is likely to be "very modest," Goldman Sachs chief economist Jan Hatzius wrote to clients on Tuesday.

Hatzius said that while there is a chance that Washington and Beijing reach a resolution, "further escalation seems likely" and the situation is "highly uncertain."

Still, some prominent business leaders are starting to sound the alarm.

The Business Roundtable, a powerful lobby led by JPMorgan Chase boss Jamie Dimon, issued a statement saying that "unilaterally imposing tariffs is the wrong way to achieve real reforms" and threatens "further harm to US businesses and workers."

FedEx CEO Fred Smith told analysts on Monday that the US-China trade fight is "worrisome to everyone" and may already be causing China's economy to moderate.

Alibaba founder Jack Ma warned the US-China trade war could last for 20 years. "It's going to last long, it's going to be a mess," Ma said on Tuesday.

Minnesota Coronavirus Cases

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Cases: 289303

Reported Deaths: 3434
CountyCasesDeaths
Hennepin616511100
Ramsey25903487
Anoka20522218
Dakota20096183
Washington13066109
Stearns1291098
St. Louis7935101
Scott782754
Wright702436
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Sherburne538640
Clay463856
Carver432213
Blue Earth387112
Rice386033
Kandiyohi373819
Crow Wing334631
Nobles298729
Chisago29358
Otter Tail282818
Benton278642
Winona258128
Mower241323
Douglas237631
Polk234423
Morrison219524
Lyon201911
McLeod195610
Beltrami194615
Becker187512
Goodhue185727
Steele17826
Itasca176124
Isanti174316
Todd171612
Carlton165710
Nicollet150823
Freeborn14465
Mille Lacs141630
Le Sueur138110
Waseca134011
Cass12849
Brown125011
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Meeker11308
Roseau10503
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Rock6829
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Houston6422
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Murray5493
Swift5366
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Marshall4438
Jackson4361
Unassigned38759
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Norman3227
Lincoln3171
Big Stone2841
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Grant2516
Red Lake2033
Kittson1917
Traverse1360
Lake of the Woods931
Cook600

Iowa Coronavirus Cases

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Cases: 222064

Reported Deaths: 2319
CountyCasesDeaths
Polk33019331
Linn13877164
Scott1085683
Black Hawk10730134
Woodbury10159121
Johnson935536
Dubuque907691
Story669721
Dallas624657
Pottawattamie612469
Sioux364625
Webster353033
Marshall343545
Cerro Gordo342644
Clinton319839
Buena Vista300014
Des Moines281719
Muscatine280968
Warren274011
Plymouth268941
Wapello251171
Jones227913
Jasper212443
Marion201719
Lee197916
Carroll195422
Bremer191312
Henry18037
Crawford173015
Benton166217
Tama152240
Jackson142113
Delaware140221
Washington137414
Dickinson134210
Boone134011
Mahaska125327
Wright12156
Buchanan115010
Clay11314
Hardin113010
Page11134
Hamilton10809
Clayton10715
Harrison106129
Cedar104913
Calhoun10487
Kossuth10236
Floyd102216
Mills10177
Fayette10159
Lyon10058
Poweshiek97913
Butler9746
Winneshiek95412
Iowa92312
Winnebago90223
Hancock8497
Louisa83916
Grundy83811
Chickasaw8354
Sac8297
Cherokee8134
Cass79721
Appanoose77310
Mitchell7704
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Union7546
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Shelby75010
Emmet74724
Guthrie73715
Franklin72921
Jefferson6852
Madison6734
Palo Alto6454
Unassigned6320
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Howard5419
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Clarke4774
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