U.S. inflation will likely fall quickly as projected by the bond market (See chart on left) but many have cast their doubts, raising the question whether the inflation breakeven rates are accurate at all in projection actual inflation.
China’s export to the U.S. has dropped to less than 3% of Chinese GDP, but WallStreet’s exposure to China has steadily risen.
Today, over 7% of S&P 500’s revenue comes from China. We know that the average operating leverage for SPY companies is 2, and this implies that 14% of EPS for the US stock market has come from China. This at least partially explains why de-escalation of Sino-US trade war has triggered a huge rally in stock prices.
