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As reported by Bloomberg, JP Morgan analysts have noted  that a robust US economy could lead President Donald Trump to overestimate his positive impact on the domestic US economy, which could see a “major miscalculation” made by the administration in the near future.

Key highlights

JPMorgan’s analysis shows that despite the US administration being caught in continuing and ongoing trade and geopolitical tangles, the domestic US economy remains strong for the time being, but an over-step in the still-raging US-China trade war could see a sharp turnaround for US equities.

According a September report also by JPMorgan, the US is planning to bring yet another raft of tariffs to bear against China, this time for $267 billion, effectively placing a 10%+ tariff on all imports coming from China; a 25% tariffs on all Chinese imports in a year can easily knock 8% off of EPS projections for 2019, and the average of Wall Street companies’ earnings per share could wipe the current US equities rally off of the map.

Elsewhere, second-degree economic effects from total import tariffs from China include hits to business confidence, supply chains, and financial borrowing and lending conditions, and an overstep by the US president’s office in seeking all-out trade wars could see the massive US economy hobbled by restrictive trade measures in a relatively short amount of time.

“The deeper question is whether this week’s rallies are the beginning of an unmissable strategic opportunity (lasting six months or more, delivering at least 10% upside) or just a more tactical one (lasting another week or two, delivering about 5% upside)?,” the strategists wrote. “Across research teams, conviction is higher around the latter than the former.” – Bloomberg