"Most major equity markets are still up substantially this year, and trade concerns are spurring bets that global central banks will ease even further. Can stock markets ride out an increase in trade tensions from here, or would the cancellation of planned talks set off a repeat of the 4Q 2018 meltdown? If that happens, will the Fed and its peers be able to engineer a turnaround the way they did in early 2019?"While a notable dip for sure, I don't know that cancelling the pending September talks would, by itself, set off something as severe as the "4Q 2019 meltdown." Ramping tariffs to 25% on all imports from China and/or a stab at imports from another country or three, on the other hand, I believe will absolutely do the trick, and some.
As for central banks once again saving the day; while coordinated stimulus would I suspect spark a bounce in equities, given present global trends (weakening) and remarkably low interest rates already, I'm afraid the Fed will at that point be simply pushing on a string.
Bottom line: For U.S. equities -- which by the way sit merely a hair above their January 2018 level (that's right, the S&P 500 is currently at 19-month ago levels) -- to avoid a recession-induced bear market (yes, I see recession as unavoidable in a long-term trade war scenario), a complete departure from using tariffs as a tool to correct perceived international wrongdoings is required.
S&P 500 Index 1/29/18 to current...
The Economist (from this week's issue) completely agrees!
The below should sound eerily familiar if you've been with us herein over the past year+: emphasis mine...
"To avoid a downturn, both sides need to compromise. But for that to happen President Donald Trump and his advisers must rethink their strategy. If the realisation has not dawned yet, it soon should: America cannot have a cheap currency, a trade conflict and a thriving economy."
"Tariffs hurt foreign exporters and dampen growth beyond America’s borders; weaker growth in turn leads to weaker currencies, as business becomes cautious and central banks ease policy in response."
"Unless this fact sinks in soon, real harm will be done to the global economy. Faced with the uncertainty created by a vicious superpower brawl, firms in America and elsewhere are cutting investment, hurting growth further. Lower interest rates are making Europe’s rickety banks even more fragile."
"As it pursues an ever more reckless trade confrontation, the White House may imagine that the Federal Reserve can ride to the rescue by cutting rates again. But that misunderstands the depth of unease now felt in factories, boardrooms and trading floors around the world. In September talks between America and China are set to resume. It is time for a settlement. The world economy cannot stand much more of this."