Trade Tariff Discussion: A Little Perspective Would Be Useful

Much of what has been discussed on financial news networks over the course of the past several days has centered on tariffs and the escalation into a potentially larger trade war. This is the type of negative news that the media enjoys pounding into its readers and listeners. Of course one should not put their head in the sand about potential consequences of an all out trade war, which we believe will not unfold though. To date the amount of product being impacted is just .25% of our economy. Adding some balance to the tariff discussion and the broader impact to the markets would be helpful. The one outcome I heard repeated today is the Dow Jones Index return is now slightly negative for the year. What about some of the broader indices though?

Below is a year to date chart showing the return of several indices and ETF's that represent the S&P 500 Index, the S&P Midcap Index (IJH), the S&P Small Cap Index (IWM) and the MSCI Emerging Markets Index (EEM). Clearly, all is not bleak. The small cap index is up 10.85% this year through the close on 6/19/2018. The nearly half year return for midcap stocks is a respectable 5.52% and the S&P 500 Index remains up 3.33%. Emerging markets have been the weak link and partially due to the tightening monetary policy in the U.S which I discuss a little later.
recent article from the Business Standard , as he believes and notes:

"The US Federal Reserve should slow down its plans to shrink its balance sheet. Or else, the deluge of US treasury issuance to fund tax cuts will dry up the dollar liquidity globally, said Reserve Bank of India (RBI) governor Urjit Patel in an article in the Financial Times."

"Given the rapid rise in the size of the US deficit, the Fed must respond by slowing plans to shrink its balance sheet. If it does not, treasuries will absorb a large share of dollar liquidity. This will lead to a crisis in the rest of the dollar bond markets."

"the issue stems from Fed’s “long-awaited moves to trim its balance sheet and a substantial increase in issuing US treasuries to pay for tax cuts."

The potential repercussions to the equity market and economy that fall out of the tit-for-tat tariff battle makes the issue one investors need to keep in the forefront. However, as one looks at the economic, company level and consumer data, the positives currently outweigh the negatives at the moment. Unfortunately, positive news usually does not attract viewers and readers to the media publications; therefore receives much less attention from the media.

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Written By: Blog of HORAN Capital Advisors