Over the past week we have seen an increase in volatility in the stock market and you may begin to see more reports in the media about prices going down. This update will give you a brief overview of current events and help you understand that this type of movement in the markets is normal.
So what’s happened?...In short, last week was the S&P 500’s worst week of 2019 and today we are seeing those losses extended as the trade war with China heats up. On Friday, President Trump’s team increased the tariff rate from 10% to 25% on $200 billion in Chinese goods, joining another $50 billion in strategically important Chinese products already taxed at the higher rate. Then over the weekend China retaliated by imposing a tariff rate of as high as 25% on a portion of $60 billion worth of U.S. goods starting June 1st. Both sides indicated that more tariffs are possible.
The important thing to understand is that from a long term perspective this is not an issue and it will not impact your goals. While these tariffs will have a meaningful and direct impact on the economy, they are the result of policy decisions and not part of an underlying negative trend. The U.S. economy is healthy and can withstand these likely temporary headwinds. In fact, first-quarter GDP expanded by 3.2% which is the best start to a year since 2015 according to the Bureau of Economic Analysis.
We do anticipate more volatility in the coming days and weeks however, which is normal for a healthy market. The S&P 500 was still up nearly 15% for the year at the end of Friday which is obviously a good thing. However, we haven’t had a pullback of 5% or more from recent highs in 2019 yet…something that has happened in every year in the past 100 years according to CNBC. So we could very well see some more days in the red, but the overall long term trend is still positive as the Fed policy continues to support the U.S. economy and the global economy’s growth picture is decent.If you have any questions or feel your business could be impacted by tariffs please feel free to contact us.
Steve Lindgren - Chief Investment Officer & Partner