LIVE MARKETS-In Trade War II, the high ground has its advantages, says Evercore ISI

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IN TRADE WAR II, THE HIGH GROUND HAS ITS ADVANTAGES, SAYS EVERCORE ISI

President Trump has a reputation as a dealmaker, who uses leverage in negotiations.

In this context, and when it comes to a trade war, Julian Emanuel, senior managing director at Evercore ISI, says that a strong stock market offers an advantageous “high ground” position from which Trump may attempt to apply pressure and maximize results.

"The experience of the First Trade War is informational. A prominent feature of Trade War I was the apparent tendency for trade tensions to escalate as the S&P 500 was strengthening or otherwise in the vicinity of its highs," writes Emanuel in a strategy note.

He adds that "on 2/1/25, President Trump launched Trade War II with the S&P 500 only 1.4% from its latest all time high set on 1/24. History doesn’t repeat, but it often rhymes."

Emanuel expects the market’s resilience and any subsequent strengthening – the “High Ground” – to set the stage for Trade War II escalation, or more tariffs.

He says this is consistent with a “3 steps forward, 2 steps back” view with bouts of volatility in 2025, and that an expensive trailing PE multiple of nearly 25x on the S&P 500 .SPX, and a VIX .VIX, at around 16, add additional layers of risk – and complacency – in proximity to all time highs.

Therefore, Emanuel believes the key to navigating Trade War II is to prepare for volatile short term episodes on the way to further upside in 2025.

With this, he thinks playing defense is the best offense in trade wars, and that "Trade War Heroes," or stocks with low volatility, and high buybacks will outperform.

"Use the current volatility in the 'AI Theme' to add to 'AI Enablers, Adopters, and Adapters', core to a portfolio built for 6,800 at Year End 2025," writes Emanuel.

(Terence Gabriel)

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