US stocks ‘astronomically complacent’ about trade war, says CLSA

A trader works on the floor at the New York Stock Exchange.

US stock investors appear “astronomically complacent” about the amount of damage the trade war will inflict on corporate earnings, according to CLSA’s chief equity strategist.

For Alexander Redman, economic data show significant cause for concern about stock prices. US firms’ capital-expenditure intentions have gone negative for only the fourth time this century; the University of Michigan consumer sentiment index is at a multi-decade low; and two-thirds of US households now believe the unemployment will be worse in 12 months’ time.

“Real damage was done to corporate and household sentiment during the period that the tariffs were being applied,” Redman said in an interview, adding that it’s unlikely they will “return to where we were back in December.”

Even with the trade war hanging over markets, the S&P 500 sits less than 5% off its record high from February, and close to the median year-end forecast of strategists tracked by Bloomberg. What’s more, the market currently sees 10% earnings-per-share growth this year and 14% next year, versus the compound annual growth rate of about 6.7% in the past four to five decades, according to Redman, who says expectations are too high.

“The sell-side are not going to tell you this because they were uniformly discredited in 2022 and 2023 for calling a US recession that never arrived,” he said. “They don’t want to stand in front of that train again.” Redman is based in Singapore.

Because of concerns about the US economic outlook, the brokerage is underweight export-driven Asian economies such as South Korea and Taiwan, and prefers markets that are more insulated from US risks, such as India and Australia.

Redman remains neutral on Japan, seeing the shares as near fair value, and on China, where the outlook is constrained by tepid consumption.