Goldman Sachs is forecasting that the ongoing U.S.-China trade war will have a larger effect on growth. In fact, the global investment firm just lowered its fourth-quarter growth forecast by 20 basis points to 1.8%, which could negatively affect U.S. equities moving forward.
“We have increased our estimate of the growth impact of the trade war,” said Goldman Sachs chief U.S. economist Jan Hatzius in a note to clients Sunday. “The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news.”
“The policy uncertainty effect may lead firms to lower capex spending as they wait for uncertainty to resolve. Relatedly, the business sentiment effect of increased pessimism about the outlook from trade war news may lead firms to invest, hire, or produce less,” added Hatzius.
Meanwhile, after the U.S. markets got what they wanted in the form of a rate cut by the Federal Reserve, global markets also reacted in tow with falling rates. Will this move put U.S. equities ahead of international equities or will the latter capitalize off potential weakness ahead for the U.S. economy?
The central bank cited “implications of global developments for the economic outlook as well as muted inflation pressures.” The Fed also said it would “act as appropriate to sustain the expansion,” which meant that future rate cuts could take place.
Investors sensing the opportunity can look to relative weight exchange-traded funds (ETFs) to take advantage of any disparity between how the U.S. markets will react versus the international markets.
For investors sensing continued upside in U.S. equities over international equities, the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI) offers them the ability to benefit not only from domestic U.S. markets potentially performing well, but from their outperformance compared to international markets. For investors looking to play the international equities over U.S. equities angle, the Direxion FTSE International Over US ETF (NYSEArca: RWIU) gives investors the opportunity to capitalize on this hunch.
RWUI features:
- Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex US 150/50 Net Spread Index (the “index”).
- The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of exchange-traded funds (“ETFs”) on the Long Component of the index.
- The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex US Index (the “Short Component”).
RWIU features:
- Seeks investment results, before fees and expenses, that track the FTSE All-World ex US/Russell 1000® 150/50 Net Spread Index (the “index”).
- The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of exchange-traded funds (“ETFs”) on the Long Component of the index.
- The index measures the performance of a portfolio that has 150% long exposure to the FTSE All-World ex US Index (the “Long Component”) and 50% short exposure to the Russell 1000® Index (the “Short Component”).
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