Stocks got rocked again last week on the news that President Trump is examining imposing tariffs on imports from China, as well as measures limiting Chinese investments in the U.S. As of last Friday, stocks were trading around the same levels hit in early February.
While the volatility last month was in response to concerns about inflation and rising interest rates, the weakness this month has been driven by concerns that President Trump’s tariff plans will incite a trade war. Tariffs are nothing new. A recent report by Raymond James’ Chief Investment Strategist stated that Europe assesses over 10,000 tariffs on U.S. goods. Another example is China, which charges a 25% tariff on imported vehicles. I was encouraged to see that the new tariffs proposed for China include a 60-day consultation and negotiation period. Stocks are up sharply today following reports that the two countries are willing to negotiate. Perhaps this will help resolve the unfair trade practices and violations of intellectual property that U.S. businesses face in China.
Where do stocks go from here? While stocks still have the tailwind of a strong economy, rising wages, and the recently enacted tax reform, this is now running up against concerns of rising interest rates and protectionist trade policies. I believe these conflicting forces of fundamentals and fears may offset each other for awhile, resulting in a sideways trending stock market. We will be issuing our quarterly update soon, in which I will provide more details.
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®