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Strategist Jim Paulsen: Investors are more worried about the bond market than the US-China trade war

Key Points
  • Investors are more worried about the bond market than the ongoing U.S. trade war with China, Wall Street veteran Jim Paulsen says.
  • "The stock market is wondering, 'What does the bond market know?'" he says.

Investors are more worried about the bond market than the ongoing U.S. trade war with China, Wall Street veteran Jim Paulsen told CNBC on Tuesday.

Wall Street is now reacting to "fear" rather than to "fundamentals," the chief investment strategist at Leuthold Group said on "The Exchange." "The stock market is wondering, 'What does the bond market know?'"

"The bond market [is] the primary thing that investors are worried about at this point above the trade war," he said.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, fell to a 19-month low Tuesday as Wall Street grew more certain that the U.S.-China trade war will last longer and afflict GDP growth more than first thought.

The world's two largest economies increased tariffs on one another this month, with the U.S. making the first move by increasing duties on $200 billion worth of Chinese products from 10% to 25%. China announced plans to raise tariff rates on $60 billion in U.S. goods. The tactics amplified a fight that has rattled financial markets and threatened to drag on the global economy.

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President Donald Trump said Monday that the United States was "not ready" to make a deal with China, before adding that he expected one in the future. He also said tariffs on Chinese imports could go up "substantially."

Andres Garcia-Amaya, founder and CEO of Zoe Financial, said in the same segment on "The Exchange" that neither the stock market nor bond market can "predict the future." He contended the stock market may have been ignoring U.S.-China trade risks for a longer period than the bond market.

"It may be that the bond market is overshooting now," Garcia-Amaya said. He added poor economic numbers from Germany, which is also feeling impact from the trade war, may also be pushing U.S. stocks lower.

— CNBC's Thomas Franck contributed to this report.