After the U.S. imposed tariffs on $34 billion of Chinese goods on July 6th, China immediately retaliated with tariffs on the same amount of US goods. Because of China's retaliation, the U.S. announced last week, on July 10th, tariffs on $200 billion of Chinese goods that could go into effect around August 23rd.
President Trump is looking to reduce the trade deficit with China, to protect the U.S. technology industry, and to get China to open up its economy more to the U.S. China has filed a complaint with the World Trade Organization (WTO) to challenge the tariffs. It's unknown at this time if China will retaliate further with more tariffs, but it would not be surprising to see the trade spat last for a few more months.
While the world will be watching the meeting between President Trump and Russian President Vladimir Putin this week, at Simply Money Advisors, we don't expect any economic developments to come out of it. The more important event – from an economic perspective – will be Federal Reserve Chair Jerome Powell's testimony before the Senate Banking Committee on Tuesday, July 17th and the House Financial Services Committee on Wednesday, July 18th.
Powell will likely play a balancing act when testifying before Congress as he negotiates between a strong economy and risks from a potential trade war with China. Wall Street will be focused on any possible clues regarding interest rate hikes from the Federal Reserve (our nation’s central bank), especially in December. The Fed has increased short-term interest rates twice so far in 2018, and according to Bloomberg, a third one is likely (80%) in September. The chances for a fourth hike in December have risen to 59%.
This week also has some very important economic data, including retail sales, industrial production, housing starts, and building permits. This data should help confirm the economy grew at a solid pace in the second quarter (April through June).
Earnings season will kick into high gear with 61 large U.S. companies announcing profits for the past three months. Some of the top companies reporting are Bank of America, Netflix, Johnson & Johnson, Goldman Sachs, IBM, eBay, Fifth Third Bank, Microsoft, and GE. It's expected that earnings for the second quarter in 2018 will be about 20% higher (on average) than 2017's second quarter earnings.
The Simply Money Point
As a long-term investor, you should continue to focus on growing corporate profits, sound economic data, and low recession risk over the next six to nine months (at least). This should help lift stock prices, but stock market turbulence should be expected as the trade spat with China continues and the Federal Reserve considers further short-term interest rate hikes.