Lack of `Adults in the Room' May Hurt Stocks, Bernstein Says

(Bloomberg) -- President Donald Trump’s trade conflict with China along with recent changes in the White House that have left few remaining “adults in the room” will curb returns for equities this year, according to Sanford C. Bernstein & Co.

The recent shake-up in the administration, including the ouster of U.S. Secretary of State Rex Tillerson and the resignation of top economic adviser Gary Cohn, is adding to concerns about protectionism as it is going to be increasingly difficult to “moderate Trump’s agenda,” Bernstein analysts led by Alla Harmsworth wrote in an emailed note. The analysts now expect European equities to rise between five percent and eight percent from now until the end of the year. In December, they forecast a 12 percent gain for 2018.

“Recent developments – coming against the background of economic growth that is still strong but is showing increasingly clear signs of slowing – are, in our view, likely to cap the tactical upside for the equity market, to a more modest gain in 2018 than what we expected at the end of 2017,” the analysts wrote.

European equities and U.S. stock futures climbed on Monday after U.S. Treasury Secretary Steven Mnuchin told Fox News he’s “cautiously hopeful” that the U.S. can reach a trade agreement with China that will forestall Trump’s plan to impose $50 billion of tariffs against the country. Trump’s announcement last week led to a selloff in global markets amid fears of a trade war.

Bernstein has also reduced its expectations for the U.S. market in 2018. While still expecting gains for the year, the upside for U.S. equities is also now seen as “considerably more modest” than before.

--With assistance from Lisa Pham

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Beth Mellor

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