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Home / Business / Here’s how Goldman says the S&P 500 would react to more US-China tariffs and why the November election result matters

Here’s how Goldman says the S&P 500 would react to more US-China tariffs and why the November election result matters



Fresh hopes for another stimulus package and signs of pandemic spread could slow are set to boost stocks on Tuesday. President Donald Trump signed executive orders over the weekend, pushing payroll taxes and extending unemployment benefits, but investors hoped talks on a bigger bailout package would resume.

The sentiment was given a further boost after Trump suggested it was considering a capital gains tax cut and a tax cut for “middle-income” winners.

Fiery tensions between the US and China, renewed by a dispute over the TikTok video-sharing app and further escalated through sanctions in Hong Kong, now seem to have taken a back seat.

In our the call of the day, Goldman Sachs analysts determined the expected responses of major assets to various trade war scenarios, including more tariffs. The estimates are based on the analysis of seven tariff announcements targeting China in 201

9, three of which are intensifying and four reducing tariff risk.

They said a sudden $ 10 billion increase in U.S. tariffs on China would lead to an estimated 1.2% drop in the S&P 500 and a 2.2% drop in Chinese capital, while the U.S. dollar would rise 0.7% against yuan. The 1.2% drop in the S&P 500 was large compared to the tariff threat itself, they said, as a $ 10 billion increase in U.S. tariffs would account for only 0.5% of corporate profits.

The disproportionate response was due to the perceived threat of Chinese retaliation and the wider risks to trade policy. In contrast, a $ 30 billion cut in tariff revenue would lead to an estimated 4% increase in the S&P 500.

Analysts Dominic Wilson and Vickie Chang said the estimates could be used to compare the potential impact of a Joe Biden presidency versus a second Trump term.

“A second term of Trump is likely to see a prospect of continued, and perhaps increased, fears of continued tariff increases, especially given the deteriorating US-China relationship in recent months,” they said.

“While a Biden presidency is unlikely to improve the outlook for broader U.S.-China relations, it is less likely that a new administration would consider tariff threats as a ‘weapon of choice’ and instead this could favor a more multilateral approach, “they added.

Goldman said the estimated impacts were solely due to trade policy alone, but also said trade policy changes under Biden could ease pressure on U.S. stocks from possible corporate tax changes.

Graph

This chart from Fundstrat Global Advisors shows that daily issues in the US are continuing to fall week by week, with Monday the lowest in six weeks, and the lowest overall since June 29th.

Source: COVID-19 Project Tracking and Fundstrat.

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Insider compares portion sizes between KFC meals served in the US and those left in the UK

markets

Dow Jones industrial average DJIA,
+ 1.30%
closed 357.96 points, or 1.3%, highest on Monday – the seventh day of the index earnings index – and was set to win again in the open on Tuesday. Dow Future YM00,
+ 1.29%
increased 1% in early trading, implying an increase of 278 points in the open. S&P 500 SPX,
+ 0.27%
was set to add to its seven-day winning belt, as futures were 0.6% higher, while futures Nasdaq NQ00,
-0.39%
also showed 0.4% higher. European stocks rallied early Tuesday, in hopes and signs of the U.S. push that the spread of the virus is slowing, with the pan-European Stoxx 600 SXXP,
+ 1.99%
increasing 1.7%

hum

Trump said his coronavirus aid executive orders led to stock market gains Monday at a news conference interrupted by a shootout outside the White House.

Russia registered the world’s first Covid-19 vaccine, President Vladimir Putin said on Tuesday, raising security concerns in the West about accelerating clinical trials.

About UBER,
-1.91%
and Lyft LYFT,
+ 2.84%
should classify their drivers as employees rather than contractors because of a new state law, a California judge ruled Monday. The ruling threatens the business models of travel greeting companies, both of which have indicated they intend to appeal.

Vehicle sales in China rose for the fourth straight month in July, climbing to 16.4%, driven by strong demand for commercial vehicles and government stimulus.

Japanese conglomerate SoftBank SFTBY,
+ 0.92%
posted a $ 12 billion profit in the first quarter, rebutted by a $ 9 billion year-over-year loss – the worst results in the company’s history.

Employment in the UK fell by 220,000 in the three months to June, the biggest quarterly drop since 2009 and the number of working hours fell to a record low.

The city of New Zealand Auckland will be closed from noon on Wednesday after the appearance of four new cases of coronavirus.

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