It was all good just a week ago...and then the trade telenovela ended the stock comeback on Friday. In response to the trade news, stocks ended the week down -1.4%.
What happened exactly?
In response to the White House’s last tariff announcement, China made one of their own. They will impose tariffs from 5% - 10% on $75 billion of U.S. goods. The tariffs will be in two waves, one on September 1st and the other on December 15th. The tariffs will include 25% on U.S. cars.
President Trump took to Twitter and suggested that U.S. companies find “alternatives to China.” It would seem the big kids are still having trouble playing nice in the sandbox together. Wall Street nerds are saying this saga will continue into 2020. We always like to put things into perspective. U.S. exports represent less than 13% of
GDP
and net exports are not a major contributor to U.S. economic growth.
So, what are we really talking about here?
The trade concerns are less about a direct threat of a recession and more about the indirect threat of the uncertainty that all of the drama causes. Trade anxiety tends to bleed into the overall state of business and possibly impact business investment and other behavior. The good news is that consumer spending, which is the largest contributor to our economic growth, is strong. Corporate earnings, which feed the long-term performance of the stock market, are also solid. Last week, a
few retail heavy hitters including
Target
,
Lowe’s
and
Home Depot
dropped earnings and they were in fact, hot
. The bottom line is that though stocks may react negatively to trade news, the current fundamentals of our economy are steady. Economic fundamentals are what matter most for stocks in the long run, not headlines.
