Stocks Forgo $5 Trillion on Trade Clashes, Deutsche Bank Says

(Bloomberg) -- President Donald Trump's raging trade war may have prevented U.S. equities from adding as much as $5 trillion, Deutsche Bank says.

That's how much stocks could have gained if the S&P 500 Index had kept its 12.5% annual pace of appreciation since 2009, according to strategists led by Binky Chadha. And it equals to a forgone return of 17%, based on the current market capitalization. But the equity measure has made little headway since the Trump administration swung into action on trade in January 2018.

The analysis also diverges from the view that the trade tiff has done little long-term damage to markets. Indeed, while the S&P 500 has retreated for four straight weeks since Trump threatened higher levies on additional Chinese imports, the benchmark still sits 5% from its all-time high through Thursday. Historically, pullbacks of this size have occurred every two or three months.

“It is tempting therefore to conclude that equity markets are complacent or even pricing in the long-term gain relative to the short-run pain,” Chadha wrote in a note to clients. “We would disagree strongly.”

Viewed from a wider lens, he said, the trade issue has morphed into one that rivals the 2015-2016 oil shock and the 2011-2012 sovereign-debt crisis. While trade tension is arguably only one hurdle to arise in the past 17 months, its emergence coincides with a prolonged market pause, making it a possible culprit, according to Chadha.

The exercise is also one way to gauge the potential economic damage since the market tends to discount future implications, he added. In that regard, the cost isn't negligible. By the firm's count, the missed equity gains are already worth 12 years of U.S. trade deficit with China.

The S&P 500 fell 1.3% as of 10:15 a.m. in New York as Trump threatened to place escalating tariffs on Mexico, and as China said it's ready to restrict the sale of rare-earth minerals to America.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, ;Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth, Andrew Dunn