Is Wall Street Ignoring the
Warning Signs of a Trade War?
By: Kevin Dombrowski
As of 6/30/18
Past performance is not an indication, prediction or guarantee of future results.
Weekly Update
Stocks were mostly up this week as solid economic and corporate earnings data outweighed trade-war and other geopolitical concerns on Wall Street. 

The Dow Jones Industrial Average four-day win streak ended on Wednesday after markets reacted unfavorably to the announcement of $200 billion in additional tariffs on Chinese goods.  Later that day, President Trump pressed allies to double their military spending target to 4% of GDP while bashing Germany for supporting a gas deal with Russia at the NATO alliance’s summit. This comes just days before President Trump is set to meet with President Putin in Helsinki in an effort to reset U.S. relations with Russia. 

It is prudent to keep an eye on Chinese trade tensions, as this could spark a credit crunch that echoes across the entire Chinese real estate sector which is now valued at over $42 trillion, or roughly 25% of global property worth.    

Why are markets ignoring the risk of a Trade War?
On Tuesday, the White House said it would asses tariffs on a further $200 billion in Chinese goods , deepening the dispute with Beijing. This may be a warning to Europe by the Trump administration that the U.S. won’t back off in a trade fight. U.S. business groups have widely criticized the administration for creating conflict with its European allies over trade, rather than joining mutual efforts in a trade offensive against Beijing. The new tariffs won’t take effect for at least two months, giving businesses time to comment on the products selected for levies. 

With so much uncertainty regarding global trade, why has Wall Street generally ignored the risks?   This is largely due to the strength of the economy and the strong corporate earnings. Until these are affected, you can expect trade war fears to continue to take a back seat. 

How good is the economy?  Perhaps this is as good as it gets .

How good are corporate earnings? Analysts expect second quarter profit at S&P 500 companies to log a rise of 20% from a year earlier, according to Factset.

With the trade disputes, time will tell how exactly it affects the markets. Some believe emerging markets could become collateral damage, as we have already seen with many of the export-dependent Asian economies. On average, the more dependent a company’s revenues are on international markets, the more affected they may be. This could bode well for smaller domestic companies that rely less on foreign markets on average. 

Still, it is impossible to consistently predict the market. Investors should consider consulting with a trusted investment professional in order to appropriately diversify across a broad array of asset classes with an aim to mitigate global risks.   
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