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<\/p>\nThe Dow ended the week up 3.3%, the S&P 500 surged 3.2% and the Nasdaq put in a weekly gain of 3.4%<\/p>\n
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Published: May 25, 2020 at 10:46 a.m. ET, By Mark DeCambre<\/p>\n
China and the U.S. are back in the headlines \u2014 but are investors paying sufficient attention to the risks of a geopolitical clash?<\/p>\n
Read: Is the stock market closed today? Here\u2019s everything investors need to know about Memorial Day trading hours and closures<\/a><\/p>\n Indeed, caustic rhetoric between the No. 1 and 2 economies in the world is intensifying \u2014 again.<\/p>\n It may feel as if the animus between the global superpowers couldn\u2019t come at a more inopportune time: in the middle of a pandemic, which notably was first identified in Wuhan, China in December, and has infected more than 5 million people around the world, according to data aggregated by Johns Hopkins University<\/a>.<\/p>\n As MarketWatch\u2019s sister publication Barron\u2019s writes<\/a>, the Sino-American issues are many and include actions taken by the U.S. to censure China\u2019s new security rules that threaten Hong Kong\u2019s semiautonomous status, restrictions against Huawei Technologies, a push to increase scrutiny of Chinese companies listed in the U.S.<\/a>, funding for the World Health Organization, and accountability for the handling of the viral outbreak that has likely ushered in one of the most severe global recessions in the past 100 years.<\/p>\n \u201cThe list is long as my arm,\u201d said Ian Bremmer, Eurasia Group\u2019s founder and president, of the Sino-American tensions, during a Friday interview on CNBC.<\/p>\n \u201cIt\u2019s never a good thing that the two largest economies in the world are battling,\u201d Peter Boockvar, chief investment officer of Bleakley Advisory Group, told MarketWatch in an emailed exchange on Friday.<\/p>\n Tensions between the countries, however, don\u2019t seem to have supplanted the intense investor focus on reopening the economy in the U.S., and elsewhere in the world, or attention on a cure for the COVID-19 pandemic, which have helped to buoy risk assets.<\/p>\n \u201cI think the market likely sees the upside risk related to finding a vaccine or treatment as near-term, and the downside risk related to China as long-term, so they are focusing more on the near-term right now,\u201d Lindsey Bell, chief investment strategist with Ally Invest, told MarketWatch on Friday.<\/p>\n On Friday<\/a>, the Dow Jones Industrial Average, DJIA, the S&P 500 index SPX, the Nasdaq Composite Index COMP, logged lackluster moves, even as the indexes all notched weekly gains of more than 3%.<\/p>\n The small-capitalization Russell 2000 index RUT, surged 7.6% for the week, suggesting that investors were scooping up smaller-cap companies, more sensitive to economic vagaries, just in case efforts to restart businesses proved successful.<\/p>\n \n\u2018The economic recovery is still very fragile and any larger repercussions between the U.S. and China could put a halt to the equity rally quite quickly.\u2019\u2014 Ryan Detrick, senior market strategist at LPL Financial\n<\/p><\/blockquote>\n The overall action in U.S. stocks has tilted higher since the indexes put in March 23 lows but has become more cautious as catalysts to take stocks substantially in either direction for a sustained period have failed to materialize.<\/p>\n Could China and U.S. tensions ultimately trigger a fresh eruption? It\u2019s impossible to know how this current political situation will play out, but the conflict bears watching, some experts say.<\/p>\n \u201cThe renewed tension between the U.S. and China certainly reignites a risk to the market that had taken a bit of a back burner during the pandemic crisis,\u201d Katie Nixon, CIO at Northern Trust Wealth Management, told MarketWatch.<\/p>\n \u201cComing in the midst of a recession, we expect that these tensions will contribute to market volatility, particularly as we head toward the U.S. Presidential election,\u201d she said.<\/p>\n \u201cAfter a 30% plus rally from the March lows, the bar is definitely much higher. As the worries with China heat up, we do think investors could be a little too complacent here and now,\u201d said Ryan Detrick, senior market strategist at LPL Financial.<\/p>\n \u201cThe economic recovery is still very fragile and any larger repercussions between the U.S. and China could put a halt to the equity rally quite quickly,\u201d he told MarketWatch.<\/p>\n Check out: Stock market traders brace for \u2018dogfight\u2019 as S&P 500 lingers below its 200-day moving average<\/a><\/p>\n With 2020 being a presidential election year in the U.S., some strategists note that the U.S.-China relationship may serve as a centerpiece on the virtual campaign trail.<\/p>\n Evercore IS analysts Sarah Bianchi and Don Straszheim say that since January, the share of U.S. voters who say China is an \u201cenemy\u201d has risen to 31%, while the percent who say China is either an ally or friend has fallen to 23%.<\/p>\n \u201cPresident Trump needs to increase turnout of his base voters in Michigan, Wisconsin or Pennsylvania to secure reelection and this issue provides the perfect fodder,\u201d the analysts write in a summary of recent discussion on the role of China policy in the election.<\/p>\n \u201cIt also enables [Trump] to deflect criticism on his COVID-19 response and attack Vice President [Joe] Biden to try to make the election a choice between the two of them \u2014 rather than a referendum on coronavirus,\u201d the analysts wrote.<\/p>\n \n\u2018I think the next 3-6 weeks could see the most meaningful decline since the March 23 bear market bottom. If that\u2019s the case, the Dow should breach its May low and head to 22,000 at a minimum.\u2019\u2014 Paul Schatz, the president of Heritage Capital\n<\/p><\/blockquote>\n