Ongoing trade war and slowing growth could push the ailing equity markets further into correction territory, said Peter Cardillo, chief market economist at Spartan Capital Securities,.
“We're going to dip into bear market territory, but it won't last long. We may dip in and out,” Cardillo told NDTV Profit in a televised interview. While there are still opportunities for investors to find solid buys, Cardillo warns that the market will remain volatile for a while, with no quick recovery in sight.
The key driver of market uncertainty is the escalating trade war. The imposition of tariffs by China in response to those by US President Donald Trump has heightened concerns about global economic growth.
“China fired back in a big way, and that's adding more stress to the markets,” Cardillo noted. He believes that until one country backs down, market conditions will continue to be difficult.
The situation has led to significant declines in global equity indices, with the Russell 2000 recently entering bear market territory. The S&P 500 on Friday saw its worst two-day plunge since March 2020 in a selloff and the Nasdaq 100 entered a bear market.
Cardillo also highlighted the risk of recession. The bond market is signaling trouble, with the 10-year US Treasury yield dropping below 4%. Cardillo predicts that if the US enters a recession, it's likely that other global economies will follow suit. The severity of the recession will depend largely on how soon the trade war ends. "It's a matter of time before we see who will blink first," he said.
He noted that markets often drive government action, referencing the 2008 financial crisis when major banks failed, prompting a policy response. While he doesn't predict a similar collapse, Cardillo suggests that if the trade war continues, markets may once again force a change in policy.
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