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We’re going to see 10% market drop before volatility fades: Investment advisor

As the trade war rages on between the U.S. and China, experts believe the end is not in sight.

Last week, the U.S. Treasury labeled China a currency manipulator, sending markets into a tailspin. U.S. stocks posted their worst session of 2019 last Monday and continued to fall hard throughout the week, rebounding only slightly by Friday’s close.

Nick Giacoumakis, president and founder of New England Investment & Retirement Group, told Yahoo Finance’s “The First Trade” on Monday that investors are becoming more hesitant.

“I think it’s the situation now, where it’s almost like the boy who cried wolf, where we’ve heard, you know, talks are going well, talks are going well,” he said. “Then, all of a sudden, 30 days later, the whole tone changes to where we are now.”

Tariffs are in focus as President Trump’s plans to impose an additional 10% tariffs on $300 billion worth of Chinese goods, adding to the 25% on $250 billion he imposed a little more than a year ago.

However, something new has investors skeptical the trade dispute will be resolved anytime soon. Protests in Hong Kong have ratcheted up this week, as protestors hosted the fourth day of sit-ins in the Hong Kong international airport effectively grounding all flights. The White House has called for all sides to “refrain from violence,” according to Reuters.

“Certainly, it’s going to put downward pressure,” Giacoumakis said.

”It’s going to get to the point where, you know, companies are going to be putting off purchases, expansion of their businesses until they have more clarity of where this is going,” he said.

Investors are bracing for volatility after seeing the Dow drop almost 800 points last week, and the S&P down 4% since hitting an all-time closing high on July 26.

“We’re going to hit the 10% mark before this stops,” Giacoumakis said, meaning he foresees a 10% market correction by end of summer.

Indeed, there is growing skepticism among analysts that a resolution with China will come before the presidential election next year. “This latest and serious escalation of the US-China trade war has in our view reduced the probability of a deal before the US election in November 2020 to less than 50%,” according to recent note from Credit Suisse. Goldman Sachs said as much in an Aug. 5 note: “news since President Trump’s tariff announcement last Thursday indicates that US and Chinese policymakers are taking a harder line, and we no longer expect a trade deal before the 2020 election. Financial markets have reacted strongly to the latest trade war news.”

“So I think investors are at a point where they’re going to take a wait and see approach, and until it’s a condition that’s more stable and there’s something more meaningful on the table, which I don’t think we’re going to see in 2019,” said Giacoumakis, “we’re going to be on shaky ground.”
Source: Yahoo Finance

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