Trade War Threatens Peace Dividend for Stocks
Before the end of the Cold War, the average P/E of the market was just 13.6. Trade tensions could be returning it there.
Wars, regardless of type, generally aren’t good for stocks.
Photographer: Cesar Manso/AFP/Getty Images
The Cold War had a chilling effect on the market for decades. The trade war with China and intensifying tensions with Mexico threaten to do the same.
Stocks have been slumping this month, with the S&P 500 Index down more than 5%. There are, of course, many reasons for investors to be wary, from the trade war to sinking bond yields. But what is confounding still-bullish investors is that even given all that, stocks may still be a buy. In fact, except for a brief period at the end of last year, the market is the cheapest it has been in years. And this comes when interest rates look more and more likely to remain low, which often elevates multiples, and corporate profit growth is expected to rebound after a two-quarter lull.