The story of June 2018 in the markets has been dominated by headlines surrounding global trade tensions. Other themes persist throughout the market such as rising interest rates, geopolitical uncertainty, and volatility in the financial markets.
During the month President Trump announced tariffs of 25% on $50 billion worth of Chinese goods. After a moderate retaliation from China he then announced additional punitive tariffs of 25% on another $34 billion of Chinese goods and threatened further tariffs should China retaliate – which is not out of the question.
Responding to the tariffs imposed by the US earlier in the year, the European Commission in Brussels gave the EU approval to impose duties on a range of U.S products, including Harley Davidson motorcycles, Levi’s jeans and bourbon whiskey. Here in North America, Canada has announced retaliatory tariffs on more than 60 US manufactured consumer goods adding up to $16.6 billion and Mexico is looking to take aim at US pork.
Despite all the negativity surrounding global trade. Global economic data remains strong, primarily driven by strong corporate earnings, fiscal stimulus in the U.S and lower unemployment in the U.S and EU. A strong U.S economy is evidenced by the confidence the US Federal Reserve has shown by continuing to raise interest rates in June and signaling more hikes to come.
World Trade Director General Roberto Azevedo said in a statement. “This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators.”
We still expect economic growth to remain in the positive territory, however those expectations are dampened by each new tariff announcement. While we believe the tactics the US government is employing are reflective of Trump’s “Art of the Deal” and are ultimately aimed at reducing protectionism from America’s trading partners. The risk is that his gamble does not pay off or has too many unintended casualties along the way.
All the developments in the markets so far this year continue to support the hypothesis of continued volatility. During these times it is important to remember that volatility is simply a part of the process and present in almost all asset classes. An interesting analogy is to think of volatility in the same way as rush hour traffic - there is no point being upset and frustrated as heavy traffic should be expected during those times.
It is also important to be able to differentiate between short-term noise and long-term fundamental developments and remember that day to day fluctuations of the market seldom have a negative long-term effect on a comprehensive financial plan. Achieving positive outcomes can be accomplished by remaining committed to your investment plan and continuing to contribute to your account during all types of market conditions.