Money Advice

Trade war concerns linger, yet investors should remain confident

Posted by The Simply Money Advisors Team on Mar 26, 2018 3:06:49 PM

The U.S. / China ‘trade spat’ was the main driver of the stock market turbulence last week.

The Trump administration issued tariffs (or, tax) on $50 billion of Chinese goods due to China's alleged theft of U.S. intellectual property. China has responded (so far) with tariffs on $3 billion of U.S. goods. 

China has much more to lose in a trade war than the U.S. In 2017, China sold $505.6 billion of goods to the U.S. (4.2% of its economy) and we sold just $130.4 billion to China (0.7% of our economy), so China is more limited as to how much goods they can tax. 

Because China currently benefits significantly more from our trade relationship, this spat is unlikely to develop into a full-blown trade war. With that said, China has some ability to push back by buying fewer soybeans from the U.S. and buying less from U.S companies, such as Boeing and Apple.

On a positive note, over the weekend, Treasury Secretary Steven Mnuchin said he was "cautiously hopeful" that a deal can be reached with China.

The other big economic news last week was the Federal Reserve (Fed), our nation’s central bank, will be raising short-term interest rates. While the rate hike was widely expected, Wall Street was looking for clues about the Fed's intentions on future rate hikes. 

The Fed's interest rate projections suggested two more rate hikes in 2018, but Fed Chair Jerome Powell dismissed those forecasts and said he wasn't worried about inflation. This suggests the Fed will not be aggressive when raising rates this year. Simply Money Advisors still expects two more increases in 2018.

The shadow being cast from these trade tensions is unlikely to have a significant effect on the U.S. economy. It certainly increases potential stock market turbulence in the short run, which is why you should own a diversified mix of stocks and bonds.

The Simply Money Point

Until there is some clarity on this trade spat, it's possible that stock market turbulence will continue. In the long run, we believe a growing economy and increasing corporate profits should help stocks rise in value, which is good news for investors like you.

 

Topics: Economy

Disclaimer

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simply Money Advisors), or any non-investment related content, made reference to directly or indirectly will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, this content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained here serves as the receipt of, or as a substitute for, personalized investment advice from Simply Money Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Simply Money Advisors is neither a law firm, a certified public accounting firm, nor a tax advisory firm and no portion of the blog content should be construed as legal, accounting, or tax advice. Please consult your own attorney, accountant, and tax advisor for legal, accounting, and tax advice. A copy of the Simply Money Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Advisory services offered through Simply Money Advisors, a SEC registered investment adviser. Insurance services are offered through Simply Money Insurance Agency, a separate entity from Simply Money Advisors. Simply Money™ and the spiral symbol are trademarks of Simply Money IP Holdings, LLC.

Simply Money Advisors

Your trusted financial planning partner helping to protect your money and make it grow.

Subscribe to Blog Updates

Recent Posts