The market needs to get back on track. A trade deal would help

President Donald Trump may believe that it's easy for the United States to win a trade war. But Wall Street begs to differ.

Posted Updated

Paul R. La Monica
, CNN Business
CNN — President Donald Trump may believe that it's easy for the United States to win a trade war. But Wall Street begs to differ.

The Dow and S&P 500 are each down more than 4% since the beginning of May, while the tech-laden Nasdaq has fallen more than 7%. The slide in tech stocks even briefly pushed that index back into correction territory earlier this week.

The recent bout of stock market volatility has been triggered almost entirely by escalating tensions between the United States and big trading partners China and Mexico. Investors are concerned about what effect tariffs will have on the global economy.

The market's stumble is a clear sign that a drawn-out trade war would not be good news for anyone, according to Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School of Business.

Trade war could hit stocks and economy

And that's why Siegel thinks Trump will eventually realize he must ink a new deal before the market — and the broader economy — takes an even bigger hit.

"A year from now, we can't be lower on the stock market than we are, and our economy has to be better. So it's up to Trump make a deal," Siegel told CNBC in May.

Siegel will be talking more about the impact of the trade war with CNN Business editor-at-large Richard Quest on the "Markets Now" live show Wednesday at 12:45 pm ET.

Another "Markets Now" show on Thursday will feature Alicia Levine, chief strategist at BNY Mellon Investment Management. She also will talk to Quest about trade.

Levine told CNN Business in April that she was particularly concerned about protectionism and tougher trade policies. She said she was especially worried that the United States and the European Union might enact higher tariffs on each other.

The Fed is talking less about raising rates

There is one encouraging sign for stocks that Siegel and Levine might touch on: the possibility that the Federal Reserve could lower interest rates if a trade war starts to damage the US economy.

Siegel said repeatedly in January that the Fed made a mistake when it hiked rates last December. He predicted at the time that the Fed would be patient before considering future rate hikes. Levine also told CNN Business in March that the Fed was too aggressive last December.

Fed chair Jerome Powell, meanwhile, has been sounding more dovish in recent weeks — a sign that the Fed could even consider rate cuts if the economy needed a boost. He said the Fed would "act as appropriate to sustain the expansion" in the US during a speech Tuesday. Wall Street rallied on those comments.

"Markets Now" streams live from the New York Stock Exchange every Wednesday at 12:45 p.m. ET. Hosted by CNN's business correspondents, the 15-minute program features incisive commentary from experts.

You can watch "Markets Now" at from your desk or on your phone or tablet. If you can't catch the show live, check out highlights online and through the MarketsNow newsletter, delivered to your inbox every afternoon.

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