Pathlight President, Adrian Larson, juxtaposes the perception versus the reality of global trade tensions and a potential trade war on the US economy and US stocks.
Trade-war slowing the US? Nope
One thing you can always count on when it comes to the news media is that the most sensational option will always be the lead. This is what is happening with the discussion of global trade tensions becoming a full-fledged trade war.
If you have been paying attention and reading at home, you might think that the US is in a bloody battle with everyone when it comes to trade and probably, with the latest news story about Harley Davidson moving some production to Europe due to retaliatory tariffs (https://www.theguardian.com/politics/2018/jun/26/philip-hammond-warns-trump-against-triggering-full-trade-war), that the US economy and US companies have already begun to weaken.
But the reality of the situation is quite the opposite. The Atlanta Fed is tracking 2Q18 GDP growth at 4.7% (https://www.frbatlanta.org/cqer/research/gdpnow.aspx) and corporate earnings are expected to post 19% year-over-year growth in 2Q18, which would be the second fastest growth since 1Q11.
US stocks are so weak. Nope
Although volatility has been high in 2018, stocks in the US have been relatively stable, which means that US markets don’t believe that trade tensions will ultimately derail the US bull market. International stocks have underperformed relative to the US however, which shows a greater sensitivity to potential negative economic shocks for international markets.
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As always, we want to make sure we are focusing clients on the realities of every situation. We are not blind to the fact that a full trade war would be bad for business in general, but we want to point out that we are so far from that. Remember, in the short-term there is always something to worry about, but markets have continued to reward investors who are there for the long-haul.
If you’re interested in learning ways to prepare for market weakness, you can download our free report Lessons for the Next Crisis
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