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A full-blown economic cold war between the United States and China could send stocks into a bear market, BTIG chief equity and derivatives strategist Julian Emanuel told CNBC on Tuesday.

“If this is really the start of a protracted economic cold war, multiples are coming in,” said Emanuel. He signaled a S&P 500 level of about 2,300 next year, nearly 14 percent lower than Monday’s close.

With the index already 9 percent lower than the Sept. 21 all-time intraday record, such a move would more than qualify as a bear market as measured by a drop of 20 percent or more from recent highs.

In putting forth this downside scenario, BTIG conducted an analysis of price-to-earnings ratios during the Cold War with Russia from 1960 to the fall of the Berlin Wall in 1989 to multiples from 1989 to now.

“That difference is over four multiple points,” a difference consistent with trade wars of the past, Emanuel said on “Squawk Box.” From the start of those conflicts out 12 months, the market on average has been down about 20 percent, he added.

The stock rout in October and the volatile November already knocked about 3 points off the market multiple since last year, said Emanuel.

FactSet puts the current forward 12-month P/E ratio for the S&P 500 at 15.1, below the 5-year average of 16.4 but above the 10-year average of 14.5.

“We’re still basically at historical averages. If you start drifting to that other regime, you’re talking about downside consistent with other trade wars of around 2,300 on the S&P,” Emanuel said.

The financial community has been hoping the meeting of President Donald Trump and Chinese President Xi Jinping at this week’s G-20 summit in Argentina will keep the trade war between the world’s two biggest economic superpowers from escalating.

However, ahead of that meeting, Trump told The Wall Street Journal Monday it’s “highly unlikely” he would delay a planned January tariff increase on $200 billion worth of Chinese goods from 10 percent to 25 percent. The president also renewed his threat to put tariffs on the rest of China’s imports into the U.S.

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Architect I.M. Pei dies at age 102

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Architect I.M. Pei stands inside of the construction site for the Louvre’s inverted pyramid. He designed the glass and metal pyramids to serve as an entrance to the Louvre museum. Paris, France.

Owen Franken – Corbis | Corbis Historical | Getty Images

I.M. Pei, whose modern designs and high-profile projects made him one of the best-known and most prolific architects of the 20th century, has died. He was 102.

Pei, whose portfolio included a controversial renovation of Paris’ Louvre Museum and the Rock and Roll Hall of Fame in Cleveland, died overnight, his son Chien Chung Pei told The New York Times.

Ieoh Ming Pei, the son of a prominent banker in China, left his homeland in 1935, moving to the United States and studying architecture at the Massachusetts Institute of Technology and Harvard University. After teaching and working for the U.S. government, he went to work for a New York developer in 1948 and started his own firm in 1955.

The museums, municipal buildings, hotels, schools and other structures that Pei built around the world showed precision geometry and an abstract quality with a reverence for light. They were composed of stone, steel and glass and, as with the Louvre, he often worked glass pyramids into his projects.

The Louvre, parts of which date to the 12th century, proved to be Pei’s most controversial work, starting with the fact that he was not French. After being chosen for the job by President Francois Mitterrand amid much secrecy, Pei began by making a four-month study of the museum and French history.

He created a futuristic 70-foot-tall,  steel-framed, glass-walled pyramid as a grand entrance for the museum with three smaller pyramids nearby. It was a striking contrast to the existing Louvre structures in classic French style and was reviled by many French.

A French newspaper described Pei’s pyramids as “an annex to Disneyland” while an environmental group said they belonged in a desert.

Pei said the Louvre was undoubtedly the most difficult job of his career. When it opened in 1993, he said he had wanted to create a modern space that did not detract from the traditional part of the museum.

“Contemporary architects tend to impose modernity on something,” he said in an New York Times interview in 2008. “There is a certain concern for history but it’s not very deep. I understand that time has changed, we have evolved. But I don’t want to forget the beginning. A lasting architecture has to have roots.”

Other notable Pei projects include the John F. Kennedy Library in Dorchester, Massachusetts, the National Center for Atmospheric Research in Boulder, Colorado, the East Wing of the National Gallery of Art in Washington and the Dallas City Hall.

When Pei won the international Pritzker Architecture Prize in 1983, he used the $100,000 award to start a program for aspiring Chinese architects to study in the United States.

Even though he formally retired from his firm in 1990, Pei was still taking on projects in his late 80s, such as museums in Luxembourg, Qatar and his ancestral home of Suzhou.

Pei, a slight man who wore round, owl-ish glasses, became a U.S. citizen in 1955. He was married to Eileen Loo from 1942 until her death in 2014. They had four children, two of whom became architects.

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China has cut its holdings of US debt to the lowest level in two years

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Chinese President Xi Jinping

Alexander Ryumin | TASS | Reuters

As trade tensions with the U.S. intensified, China sold off its Treasury holdings at the fastest pace in about two years during March.

The largest foreign owner of U.S. debt reduced the level by just shy of $20.5 billion, a slight decrease that brought the total holdings down to $1.12 trillion. But the move represents a continued pattern of declines that comes as the two sides have been unable to hammer out a long-term trade agreement and instead have been engaging in a tit-for-tat tariff fight that has escalated in recent days.

In the 12-month period ended in March, the latest month for which data is available, China’s stockpile of U.S. government notes, bonds and bills fell by $67.2 billion, a 5.6% decline. The total has fallen by some $200 billion since the peak in 2012 and now represents 7% of total U.S. debt outstanding, compared with 12% previously, according to UBS.

The threat of the country either not buying Treasurys or engaging in outright sales has shaken the bond market before. In addition to any punitive action China might take, it is thought to have reduced its holdings in an effort to defend its currency.

More aggressive actions to cut holdings are considered a nuclear option that could further aggravate ongoing trade negotiations.

The impact, though, of any such moves is unclear.

UBS estimates that if the reduction is gradual, it likely would result in a rise in the benchmark 10-year Treasury yield of at most 0.4 percentage point.

“To the extent that China’s Treasury sales could be either the cause or the effect of a more risk-averse global environment, the positive impact on Treasury yields could be smaller than estimated if private investors step up their Treasury purchases,” UBS strategist Chirag Mirani and others said in a note to clients.

China’s share of total U.S. debt compared with other global government declined to 17.3%, the lowest since June 2006. Japan is still the second-largest holder, with $1.08 trillion, while the U.K. stepped backed into third place as it increased its level to $317.1 billion.

Foreign government ownership of U.S. debt hit a record of $6.47 trillion, up 4% from a year ago, as the government’s total debt continues to swell and now has topped $22 trillion. Foreign residents increased their holdings by $23.9 billion.

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Analysts downgraded these stocks due to the US-China trade war

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David Paul Morris | Bloomberg | Getty Images

The ramifications of the U.S.-China trade war are being felt far and wide. Now, the dispute is causing Wall Street analysts to take drastic measures and remove their buy ratings on stocks in their coverage universes.

Companies feeling the heat cover a wide range of sectors and it appears almost no one is being spared. They include stocks like Owens Corning, American Eagle, Melco Resorts, Duke Realty, G-III, Steven Madden and China Southern Airlines.

While the S&P 500 hit an all-time closing high in April, it’s now down more than 2% this month due to the ongoing trade escalation.

The retail sector is one group widely believed to be among the most vulnerable to tariffs, according to many analysts.

This week Piper Jaffray decided it had seen enough and downgraded Steven Madden and G-III Apparel over the dispute. “We are downgrading SHOO & GIII from OW to Neutral as tariff rhetoric accelerates across our group weighing on names that have large U.S. businesses & a disproportionate share of production in China,” analyst Erinn Murphy said.

“Even if there is tariff relief in the next month–we are not certain we’ll see a full recovery of the multiples,” she said.

Steven Madden is down more than 2% while G-III has fallen more than 13% this week.

The feeling was mutual over at Wedbush where analyst Jen Redding downgraded American Eagle Outfitters.

“Although we continue to remain bullish on American Eagle over the long term, we now have less conviction in runway for shares as we approach our price target in what we view as an increasingly volatile retail environment, until investor visibility into a US-China trade settlement improves, and are stepping to the sidelines for now,” she said.

Shares are down more than 6% this week.

Building materials, real estate

Construction stocks are another group that likely will feel the tariff pinch from higher costs for materials, Nomura Instinet analysts said.

“Companies most dependent on housing growth to suffer demand deterioration from 25% Tariffs,” analyst Michael Wood said in his downgrade of construction materials maker Owens Corning.

“In our view, the best-case scenario is that over the next four weeks, U.S.-China negotiators reach a deal and avoid any noticeable impact to U.S. economic growth or consumer confidence, but this looks increasingly unlikely,” he said.

The stock is down over 4% this week.

Elsewhere in real estate, warehouse renters could take a hit because of reduced imports coming from China.

Duke Realty, a real estate investment trust which provides warehouse solutions was downgraded by analysts at Bank of America. “Recent tariff announcements and threats from both the US and China suggest a bumpier road to a trade deal than previously expected,” they said.

While the analysts remain positive on the sector overall, they did say that, “warehouse demand is highly correlated with GDP growth and BofAML Economists would expect a drag on growth if a trade war escalates.”

Shares of the company are up slightly this week 0.26%.

Here are what analysts are saying about the stocks downgraded because of the U.S.-China dispute:

Nomura Instinet – Owens Corning, downgraded to neutral from buy

“Companies Most Dependent on Housing Growth to Suffer Demand Deterioration from 25% Tariffs. Housing fallout hinges on equity market and trade spat duration. There is no roadmap to help quantify the impact from escalated tariffs on U.S. housing demand. Population growth and household formation drive demand long term, but given the large-ticket nature of home buying, demand can be postponed for years during periods of uncertainty or a soft economic backdrop. We forecast housing demand by cohort (entry-level, move-up, investor), which provides an understanding of the key demand drivers by cohort. We previously discussed these demand drivers in The iGen Super Cycle. There is a wide range of potential paths to the housing cycle over the next few years. In our view, the best-case scenario is that over the next four weeks, U.S.-China negotiators reach a deal and avoid any noticeable impact to U.S. economic growth or consumer confidence, but this looks increasingly unlikely–we previously modeled this scenario.”

PiperJaffray – Steven Madden & GIII Apparel, downgraded to neutral from overweight

“We are downgrading SHOO & GIII from OW to Neutral as tariff rhetoric accelerates across our group weighing on names that have large U.S. businesses & a disproportionate share of production in China. While both management teams are resourceful, have strong relationships with their retailers and have already made meaningful progress diversifying production in China, they still produce a large amount of their goods in China. We lower our estimates based on existing tariffs in place which we see impacting 2H earnings. While both vendors likely can increase pricing to some extent, we believe their overall exposure to China & recently proposed tariffs to the apparel/footwear categories will weigh on their multiple. Even if there is tariff relief in the next month–we are not certain we’ll see a full recovery of the multiples. As such, we prefer to sit on the sidelines with both stocks for now.”

Wedbush – American Eagle, downgraded to neutral from outperform

“We are lowering our rating on shares of American Eagle to NEUTRAL and are removing AEO from the Wedbush Best Ideas List, as shares approach our $25 price target. We remain bullish on American Eagle over the long term with proprietary data signaling a first quarter beat owing to strength in merchandise margin. .. .We favor shares of American Eagle over the long term even more now, given our preference for shares of domestic-focused retailers in the time of a strong dollar – as bright U.S. prospects fuel stateside spending in discretionary, and shares attract investors overseas seeking high dollar-denominated returns. Although we continue to remain bullish on American Eagle over the long term, we now have less conviction in runway for shares as we approach our price target in what we view as an increasingly volatile retail environment, until investor visibility into a US-China trade settlement improves, and are stepping to the sidelines for now.”

Bank of America – Duke Realty, downgraded to neutral from buy

“Uncertain path to China trade war resolution. Recent tariff announcements and threats from both the US and China suggest a bumpier road to a trade deal than previously expected. We remain positive on the secular trend in warehouse demand from e-commerce, the push to store goods closer to the consumer, and the governors on new supply in many markets. That said, warehouse demand is highly correlated with GDP growth and BofAML Economists would expect a drag on growth if a trade war escalates. As such, we remain Overweight Industrial within REITs* but are taking a slightly more cautious stance on the sector by downgrading DRE to Neutral.”

Morgan Stanley – China Southern Airlines, downgraded to equal-weight from overweight

“Given the recent re-escalation of trade tensions between the US and China, we see near-term risks to China airlines stocks from: 1) the dip in RMB/USD exchange rate; 2) negative reaction in overall market, which will affect hit high-beta stocks, such as airlines, in particular; 3) potential demand impact if trade tensions continue.”

Wolfe Research – Melco Resorts & Entertainment, downgraded to peer perform from outperform

“We downgrade shares of MLCO for four key reasons: 1) the stock has rallied meaningfully off its lows and the multiple has recovered to near historical levels, 2) prior consensus estimates seem aggressive to us, 3) the macro looks increasingly dicey with re-emerging trade war rhetoric and recent stimulus from China may be short lived per reports, 4) the Morpheus ramp is taking longer than we expected and today’s call didn’t have enough answers to give us confidence.”

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