Markets experienced significant declines last week. The S&P 500 lost 5.95%, the Dow dropped 5.66%, and the NASDAQ declined 6.54%.[1] With these losses, all 3 domestic indexes had their worst weekly performance in more than 2 years.[2] International stocks also declined, with the MSCI EAFE giving back 2.64%.[3]
What caused markets to stumble in this way? While various economic reports came out and the Federal Reserve raised rates again, another topic triggered the declines: trade war concerns.[4]
Weekly Focus: Analyzing Tariffs and Trade Wars
What happened?
Last week, President Trump approved new tariffs on China as a punishment for taking American intellectual property. The tariffs could affect as much as $60 billion in Chinese imports – and Trump called this the “first of many” trade actions against the country.[5]
China indicated that it may retaliate and is “looking at all options” on how to respond. Apparently, everything is on the table – including targeting 128 American products, no longer purchasing U.S. Treasuries, and taking legal action through the World Trade Organization.[6]
How did investors respond?
The new China-specific tariffs combined with Trump’s steel and aluminum tariffs earlier this month create growing concerns about a trade war.[7] The market declines we experienced last week are largely a reaction to these fears.[8]
What might happen next?
These new tariffs have the potential to create 2 very different results:
1. A trade war that stifles global growth
2. A more even playing field for American companies
A trade war: If the U.S. and China go back-and-forth adding punitive tariffs to each other’s products, our economy could suffer. We could experience inflation, slower economic development, and higher interest rates, making expansion and growth harder for U.S. businesses.[9]
A more even playing field: If the tariffs are successful, U.S. industries could benefit. Some U.S. steel producers are already boosting their production and hiring as the first round of tariffs goes into effect.[10]
Where do we go from here?
The potential for a full-blown trade war exists, which could negatively affect the global economy. But this worst-case scenario is far from certain, and many opportunities exist to calm the rising tension.[11] For now, we will continue analyzing exactly what is happening with tariffs and how different countries react.
In the meantime, if you have questions about how these geopolitical changes could affect your financial life, we are always here to talk.
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ECONOMIC CALENDAR
Tuesday: Consumer Confidence
Wednesday: GDP, International Trade in Goods
Thursday: Jobless Claims, Consumer Sentiment
Friday: U.S. Markets Closed for Good Friday
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Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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Any economic and/or performance information cited is historical and not indicative of future results. The Retirement Solution Inc. is an investment advisor registered in each state The Retirement Solution Inc. maintains client relationships.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
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Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named representative,
Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
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[3] www.msci.com/end-of-day-data-search
[4] www.cnbc.com/2018/03/23/us-stock-markets-set-for-a-sharp-fall-at-the-open-amid-trade-war-fears.html
www.cnbc.com/2018/03/23/us-stock-markets-set-for-a-sharp-fall-at-the-open-amid-trade-war-fears.html
[8] www.cnbc.com/2018/03/23/us-stock-markets-set-for-a-sharp-fall-at-the-open-amid-trade-war-fears.html
[9] www.cnbc.com/2018/03/24/china-development-forum-heres-what-experts-are-saying.html
www.inc.com/zoe-henry/trump-steel-and-aluminum-tariffs-ripple-effects-your-business.html
[10] www.zacks.com/stock/news/296710/trump-tariff-amp-steel-industry-the-good-the-bad-amp-the-ugly
