Investors in the U.S. awakened Thursday to a slew of reports from economists upgrading their second-quarter growth forecasts. The new estimates from the likes of JPMorgan Chase & Co. and Amherst Pierpont Securities LLC ranged from 2.75 percent to 4.2 percent. And yet the S&P 500 Index fell and Treasuries rallied. The message? All bets are off in a trade war.
Any optimism investors might have had about the economic outlook was quickly dashed when the Trump administration announced it was imposing tariffs on steel and aluminum imported from the European Union, Canada and Mexico. Bloomberg News called the move the most aggressive trade action yet by the U.S. against its chief allies. Those allies promptly said they would take immediate steps to retaliate. At this point, nobody knows where this will end or what the impact will be on the economy. As such, investors face a pretty big dilemma. They can either stick with higher-risk assets such as equities and hope a full-out trade war is averted, or go into supposed safe assets such as bonds and hope the recent acceleration in inflation proves fleeting despite the red-hot jobs market.