Trade and Tariffs Rattle MarketsMarket Commentary
Weekly Update–July 2, 2018
International trade concerns continue to create uncertainty in markets around the world.[i] Despite the markets’ slight rises on Friday, June 29, they recorded losses for the week.[ii] The S&P 500 fell 1.33%, the Dow gave back 1.26%, and the NASDAQ dropped 2.37%.[iii] Internationally, the MSCI EAFE declined 1.10%.[iv]
Friday also marked Q2’s last trading day. The U.S. economy remains strong thanks to low unemployment numbers and strong corporate earnings.[v]Meanwhile, on Thursday, the Fed announced that all but one bank passed stress tests evaluating their ability to weather a financial downturn.[vi]
This week, we’ll address President Trump’s proposed tariffs on international imports and their effect on stock performance.[vii]
The Breakdown: Global Trade Concerns
President Trump maintains that China and other countries have consistently practiced unfair trade tactics and imposed large tariffs on U.S. exports.[viii] In response, the White House has proposed raising tariffs on imports from China, Canada, and other countries.[ix]
Unfair trade practices take several forms. In one scenario, foreign governments subsidize companies that export products. Those companies may in turn sell their products in the U.S. below cost. This approach can harm U.S. companies, cost jobs, and ultimately damage the economy.[x] The President also argues that imported metals are a threat to national security.[xi]
The Impact: New Tariffs on the U.S.
Canada has responded to increased rates on steel and aluminum by announcing $16.6 billion in new tariffs on U.S. products, effective July 1.[xii] On July 6, President Trump will determine whether to impose additional tariffs on $34 billion of Chinese goods.[xiii] Additionally, the U.S. Chamber of Commerce estimates that 2.6 million U.S. jobs could be on the line due to the administration’s trade policies.[xiv]
Already, nearly 21,000 companies have asked for tariff exclusions to import metal duty free. Some of these companies claim the current trade disputes have resulted in layoffs and possible relocations or closures.[xv]
Looking Ahead: Ongoing Global Developments
Third-quarter trade developments will continue to influence markets and emerging economies.[xvi] In addition, after the financial sector just posted its longest losing streak ever, analysts will be looking at how and whether they bounce back. Meanwhile, markets will also track the yield curve, which measures the difference between short- and long-term bond pricing. The curve has flattened to its lowest levels since August 2007, as investors drive up long-term bond prices in their search for safety from market volatility.[xvii]
As details continue unfolding, we’ll be sure to keep our pulse on what lies ahead. In the meantime, please contact us if you have any questions on how these details relate to your financial life.
Monday: PMI Manufacturing Index, Construction Spending
Tuesday: Motor Vehicle Sales
Thursday: ADP Employment Report, Jobless Claims
Friday: International Trade
|DATA AS OF 6/29/2018||1 WEEK||SINCE 1/1/18||1 YEAR||5 YEAR||10 YEAR|
|STANDARD & POOR’S 500||-1.33%||1.67%||12.17%||11.10%||7.82%|
|DATA AS OF 6/29/2018||1 MONTH||6 MONTHS||1 YEAR||5 YEAR||10 YEAR|
|TREASURY YIELDS (CMT)||1.77%||2.11%||2.33%||2.73%||2.85%|
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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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.
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