Tariffs, Trade War Uncertainty Aren't The Only Things Plaguing Stocks
Investing.com | Mar 08, 2018 01:50
- Speculation rampant about the reasoning behind Trump’s timing
- Tariffs’ impact appears negative from historical standpoint
- Market focusing on fears of global trade war
- Potential trade war not the only ingredient to current uncertainty
US President Donald Trump's announcement of his intentions to implement tariffs of 25% on steel imports and 10% on aluminum—for which a decree is expected to be signed later today—added to recent equity volatility last week, but the move toward greater protectionism in US trade polices is not the only factor plaguing stocks as volatility returns to Wall Street in 2018
h2 Why Did Trump Make The Decision Now?/h2Before looking at the potential impact from the policy move, analysts are widely focusing on the reason for the announcement itself. Overall, it should be remembered that Trump repeatedly made these types of promises throughout his presidential campaign, so the announcement itself should have come with little surprise, even despite objections by Trump’s own staff that are arguably one of the main reasons why his chief economic adviser Gary Cohn decided to resign.
Even more interesting from Delwiche’s chart above is how 2017 stands out as the least volatile year out of the last 20.
With American equities on track for the current bull market run to celebrate its nine-year anniversary on March 9, equities may be running out of steam after quite an impressive climb.
“This is now the second largest (nearly quadrupled on a total return basis) and second longest (nine years) bull market since World War II, with only the 1990s bull market standing in its way,” LPL Research recently reminded investors in a note .
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With Trump’s fiscal stimulus packages likely a thing of the past, stock investors may well be hard pressed to find further reasons to not just break, but simply hold near, all-time highs without taking a breather or even undergoing a correction before attempting to take another shot at continuing the upward climb.
Still, it’s worthwhile remembering that the President’s comments on trade came charging in on the coattails of no-less-significant worries sparked by remarks from Federal Reserve Chairman Jerome Powell that recent economic strength could result in a slightly more aggressive removal of accommodative policy, putting the market nerves on edge. In that light, Trump’s declarations did little more than pick up the “volatility baton” from Powell who implied in congressional testimony to the House last week that four rate hikes this year (instead of the expected three that currently priced in at around 70%, according to Investing.com’s Fed Rate Monitor Tool) could be in the cards given his positive take on how the economy had strengthened since December.
Adding to the uncertainty of where the White House is headed with trade policies and what the global reaction will be, tariffs are widely expected to push up costs for American consumers as well. Price increases on products from abroad or those domestic items that use higher priced materials could well be the push to subdued inflation levels that has been missing in the Fed’s puzzle for a more aggressive policy tightening.
Don’t get us wrong; the threat of global trade wars shouldn't be taken lightly, but the fallout from new tariffs is but another piece of that market nemesis, uncertainty, that is keeping investors on edge, during a year with several factors signaling risks ahead. And as we’ve already seen, 2018 is already a far cry from its calmer predecessor.
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