Market PerformanceJune 25th, 2018 by Anchor Bay Capital's Investment Team
Today’s Market Performance
We felt that it would be worthwhile to send out a communication regarding today’s market volatility. As of today, the market as a whole, is down for the year. While market performance is important to be aware of, your actual portfolio performance will vary from the overall market. If you have not accessed your client performance portal recently, please click on the “Client Portal” link below to view instructions on how to establish your login. This portal is different from your normal Fidelity login and will actually show you your performance over various time periods. You will also be able to see how you have performed with regard to a benchmark comprised of the market indices.
Uncertainty about Economic Policy
Recent volatility, including today, comes from reactions to various economic threats. The usual suspects of the recent months are worries about unfair trade, rising interest rates, elevated valuations of stocks and political uncertainty in Washington. All of these concerns can be expected to give investors high anxiety and turn a routine drop into a gallop for the doors. Today the concern is trade issues. According to CNBC and the Wall Street Journal, President Donald Trump plans to bar several Chinese companies from making investments in U.S. tech. The newspaper also reported that the administration wants to block additional technology exports to China. Both measures are expected to be announced by the end of the week. This increase in trade tensions between the U.S. and its key trade partners, including China, are keeping Wall Street on edge. These recent announcements are in addition to the earlier announced tariffs that the U.S. plans to implement.
A tariff is simply a tax on imported foreign goods (i.e. aluminum from China). It essentially raises the price of the foreign good and helps domestic producers of that same good (i.e. U.S. producers of aluminum), become more competitive. In addition to creating a favorable environment for U.S. producers, the Trump Administration hopes to make the playing field more level with China. The Chinese government has maintained policies prohibiting the use of certain foreign goods, thus forcing its people to buy only domestically. Meanwhile they keep labor laws and wages to a minimum so that they can produce goods at a very low price. This decreases imports and increases exports leading to huge trade gaps with most developed foreign countries like the United States.
There are three goals the administration wants to accomplish with this tariff policy:
- To protect tech companies from Chinese theft,
- To minimize trade barriers set by other countries relative to the U.S. and,
- To lower the trade deficit.
While the president’s intentions are admirable, interruptions to free trade have serious economic consequences. U.S. consumers who buy these goods from foreign countries will now have to pay a higher price for the same good. This will affect corporations most directly. Industrial companies like Boeing, Lockheed Martin, and others will see tighter margins due to the increasing cost of goods. In fact, Harley Davidson announced today that they are shifting some of their production overseas as tariffs could reduce profits by $30 to $45 million this year. With the president threatening tariffs, foreign countries like China are retaliating with tariffs of their own. The volatility we are seeing in the market comes from worries of an escalating trade war.
The good news is, neither country wants a trade war. And although lots of talk has occurred, very little has actually been implemented. We view this volatility as a short-term occurrence and expect the market to rally back once new negotiations and compromises are offered.
As long-term investors, try and remember not to worry about this day-to-day volatility of the market. As long as the market continues to climb over time, as it has historically, your good investments will appreciate.
We are not making any major changes as a result of the recent volatility. We will stay in our current investments while monitoring the global economic situation.
As always we deeply appreciate your confidence in us. If you have any questions about this email please feel free to reach out to our team.
By: Scott Spiering and Tanner Wrisley