In addition to general fears of an impending recession (concerns of an overzealous Fed hiking short-term rates too high) and you can understand why investors are nervous. And of course, we can’t forget about the ongoing trade war, which threatens to both slow the US and global growth and hurt corporate earnings.

geographic revenue exposure

(Source: FactSet Research)

S&P 500 Aggregate Sector Geographic Revenue Exposure

That’s because 39% of S&P 500 revenues come from overseas, with tech stocks being the most vulnerable of all to disruption from a trade war with China. Last week the US announced it was resuming trade talks with Beijing after China sent a revised list of terms that would resolve many of America’s biggest issues with the trade between our two nations.

Most importantly, the market cheered when the three positive trade-related news stories broke. First Trump tweeted that China was eager to make a deal, and he was as well (he ordered administration officials to draw up the paperwork). More importantly, US Trade Rep Lighthizer told reporters that lower level negotiators were being empowered to build a framework that Trump and Chinese Premier Xi could discuss at the G20 Summit in Argentina on Nov 30th/December 1st. Most promising of all was Lighthizer saying that the $267 billion round of tariffs (which would have placed tariffs on 100% of Chinese imports) was on hold while talks were underway.

But over the weekend Vice President Mike Pence spoiled the festive trade mood by giving a fiery speech in which he warned the US/China trade war would not end until China capitulated to US demands, specifically regarding both intellectual property protections and drastically reducing the China/US trade deficit.

Meanwhile, US economic growth forecasts for Q4 2018 have been coming in much slower than the last two quarters (2.7% compared to 4.2% in Q2 and 3.5% in Q3), which has the market worried that next year the US might be facing much slower growth or even a recession.


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