The Stock Market Doesn't Want a Trade War

"The big story for the markets is that we're simply in a trade dispute, not a trade 'war' between the U.S. and China," wrote Greg Valliere, chief global strategist at Horizon Investments, in his latest Capitol Notes.

The White House recently walked back the 25% tariff on imported steel and 10% tariff on imported aluminum from every country in the world that it announced a few weeks ago. Last Thursday it temporarily exempted many countries and regions from the tariffs until May 1, including the European Union, Canada, Mexico, South Korea, Australia, Argentina and Brazil.

J. D. Foster, chief economist at the U.S. Chamber of Commerce, on Friday called the steel and aluminum tariffs "a blunt and misaimed response," and the chamber's president, Tom Donohue, has said the tariffs on China would be "damaging taxes on American consumers."

Last week's steep market drop and rebound is not an unusual pattern this year, but it has led some strategists to advise caution.

Following the rout last week, Nigel Green, founder and CEO of deVere Group, wrote, "With the possibility of a Trump-induced trade war heating up, investors should review their portfolios to make sure they remain on track to meet their long-term financial goals." He urged investors to make sure "they are properly diversified across regions, sectors and asset classes," noting that "diversification is a key tool to mitigate potential risks and to take advantage of the inevitable opportunities that bouts of volatility present."

Liz Ann Sonders, chief investment strategist at Schwab, also urged investors to check themselves: to "review the timeline" for their goals, "get reacquainted" with their investment plan, "revisit" their risk tolerance, and "rebalance back to strategic allocations" if a pullback materializes. She said the market is not in bear territory but "momentum has weakened."

Sam Stovall, chief investment strategist of U.S. Equity Strategy at CFRA, said the S&P 500 will likely revisit its February low, which registered a 10% decline from its late January high, signaling a market correction. "The correction was not completed," says Stovall.

On Feb. 9, the S&P 500 fell to an intraday low of  2,533, and on Feb. 8, it posted a closing low of 2,581. Stovall said the key level to watch now is the 2,565-2,588 range. "Any breach of this key support would likely usher in additional volatility and downside risk," Stovall says, but he doesn't think that will lead to a new bear market.  The S&P 500 closed Friday at 2,588.26.

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